House prices ended last year up 6.5% annually at £222,484, according to Halifax.

The Halifax House Price Index for December shows house price inflation hit 6.5% at the end of 2016, still below the stamp duty rush peak of 10% in March, but the highest annual growth since September.

Meanwhile, Luton recorded the biggest percentage rise in house prices among major UK towns and cities over the past year, according to separate research by Halifax, with the average house up 19.4% year-on-year to £256,636.

The outer London borough of Barking & Dagenham experienced the second biggest rise in average house prices with an increase of 18.6%, while Dunstable completed the top three with a 17.9% rise.

Martin Ellis, Halifax housing economist, said: “House prices finished 2016 strongly. Prices in the final quarter of the year were 2.5% higher than in the previous quarter. The annual rate of growth increased, rising for the second consecutive month, from 6.0% in November to 6.5%.

“Slower economic growth, pressure on employment and a squeeze on spending power, together with affordability constraints, are expected to reduce housing demand during 2017.

“UK house prices should, however, continue to be supported by an ongoing shortage of property for sale, low levels of housebuilding, and exceptionally low interest rates.

“Overall, annual house price growth nationally is most likely expected to slow to 1-4% by the end of 2017. The relatively wide range for the forecast reflects the higher than normal degree of uncertainty regarding the prospects for the UK economy this year.”

Responding to the index, Ben Madden, managing director of Thorgills, said: “While annual house prices have failed to return to the lofty heights recorded during the pre-stamp duty rush of March, 6.5% growth at the tail-end of such a tumultuous year is far better than anyone would have expected.

“Low mortgage rates have continued to attract prospective buyers to the market.

“Combined with a ongoing shortage of stock, house prices have continued to hold their own in the wake of political uncertainty.

“London’s significance as a global hub for employment and business has continued to be a catalyst for house prices in satellite towns – as Luton and nearby Dunstable proved to be amongst the star performers for property price increases in 2016.”