Figures released by the UK's biggest mortgage lender revealed that the average price rise last year was 5.1%, well below the 8% average.
The annual rate of house price inflation slowed in all regions except London, which grew 6.7% compared with a 3.9% rise in 2004.
Scotland delivered the biggest house price gains last year with a 14.8% rise: the first time that Scotland has recorded the strongest rises in the UK for 15 years.
The next biggest increases in 2005 were in Northern Ireland (14.1%), North (9.1%), Yorkshire and the Humber (8.4%) and the North West (7.2%). Two regions recorded small falls during 2005 - East Anglia (-1.0%) and the South West (-1.9%) - marking the first regional annual house price falls since 2000.
Halifax said it expected the market to be flat in 2006 with modest nominal house price growth and no change in real terms.
The annual rate of house price inflation is expected to increase during the first half of 2006, potentially reaching a peak of 7%-8% mid year as modest price rises compare with slight falls in early 2005.
The annual rate is subsequently expected to fall as prices rise at a significantly slower pace than in the second half of 2005.
Halifax is known for producing relatively optimistic studies of the market. Its final figure for 2006 is above the 3% rise most industry experts have settled on.
Halifax chief economist Martin Ellis said: "House prices increased by 1.0% in December and by 2.1% in the final quarter of 2005, confirming a modest recovery in prices during the latter part of last year.
This pick-up in prices is entirely consistent with the improvement noted by all the main indicators of housing market activity over recent months."
