A "major reversal in confidence" has hit the housing market, causing prices to suffer their biggest monthly decline since 2005, a property group claims.

The average house price fell 0.3% in December compared to November, according to Hometrack - the largest monthly fall since January 2005.

The year-on-year rate of price growth also slipped back to 3%, the lowest rate since June 2006, the group said.

Hometrack's director of research Richard Donnell said: "The second half of the year has seen a major reversal in confidence on the back of higher interest rates and concerns over the outlook for the financial markets."

The research also showed the average time to sell a house was now 8.3 weeks - the longest period since the group began surveying the market in 2001.

And estate agents were reporting house price falls in 30% of the country - also a rise, the group said.

Average home values were boosted by the central London market and key commuter areas in the south where demand outstripped supply, Hometrack said.

Mr Donnell said: "Across the rest of the country house price growth was far more subdued and interest rate increases were already beginning to bite."

He said: "Just as the financial markets have faced a liquidity squeeze so the housing market is in danger of facing its own liquidity squeeze in the first half of next year.

"High transaction costs, a weak outlook for prices and continued uncertainty among vendors creates the potential for a major lack of housing coming to the market in the first quarter of the year.

"In our view this will act as a support to prices while also leading to greater price volatility in those markets where there is the greatest lack of supply.

"Overall we expect average prices to rise by just 1% over 2008 with sales volumes projected to be down 17%."

House price falls in the last three months have been concentrated in areas which have struggled throughout 2007, the survey showed.

In areas such as South Yorkshire, North Lincolnshire and Nottinghamshire prices fell by 1% during the year.

Copyright © PA Business 2007