But the good news is that the annual decline in prices has slowed and is down from the 4.3% recorded in the third quarter of last year.
There are also regional variations. Esher and Oxford continue to outperform the wider market, with annual price rises of 3.6% and 3.3%.
Stock volumes are up on the year, with a 15% rise in the number of new properties coming to the market, the index also shows.
Overall prices remain higher than at the last market trough in 2009, but have now been declining for seven consecutive quarters.
According to head to research Grainne Gilmore the increase in stamp duty for properties worth £2 million plus from 5% to 7% in March 2012 has been a major catalyst. As a result the annual price fall for house worth between £2 million and £3 million was 5.6%, the biggest decline recorded by the index.
The data shows that prices in the £5 million plus price bracket, which had been fairly resilient in 2012, fell 3.9% in the final quarter. This effectively reversed the gains seen in the previous quarters.
‘Buyers at the top end of the market are raising concerns about the implications of recent tax changes and on going economic uncertainty. Indeed, the Office for Budget Responsibility recently downgraded its forecasts for the UK economy,’ said Gilmore.
‘But agents reported that activity levels actually rose as the Autumn Statement and publication of the draft Finance Bill provided the sector with some clarity. This should continue to encourage buyers who have been waiting on the sidelines to commit,’ she explained.
She pointed out that regionally there are some areas of localised outperformance. Prices in and around Esher are up 3.6% on the year, while prices around Oxford have risen by 3.3%. Home owners in Guildford have seen the value of their prime property rise by 1.3% over the last 12 months.
Interest from prospective buyers remains steady, with a 5% increase in viewings in the three months to December. But supply has also risen compared to last year, with stock volumes up 15% in the final three months of the year.
‘However, the prevailing feeling in the market is still one of uncertainty with transactions taking longer than they usually would and constrained mortgage lending impacting on volumes,’ said Gilmore.
‘We are forecasting another small dip in prime country house prices next year, with some exceptions in hotspots such as Oxford and Guildford, where we expect prices to rise modestly in the next 12 months,’ added Gilmore.
Rupert Sweeting, head of the Knight Frank Country Department, added that the best property has sold exceptionally well in 2012. ‘This has been at all levels and the flight to quality continues, with the near fault free houses or estates being sold under competition. Often bidders have needed other parties to bid against to give them the confidence that they were not paying too much,’ he said.
‘In the last quarter vendors became more realistic and buyers more focused on securing their future house resulting in an unseasonally high number of deals being agreed in late November/December. Going forward we predict more of the same, but the added advantage of no Olympics or Football World Cup to stall the market mid season,’ he concluded.