House price inflation for 2006 hit 10.5% after a fall in supply helped push prices up another 1.2% in December alone, reports Nationwide.
The lender's latest survey of the market suggests prices will rise through 2007 by between 5% to 8%.
Latest price increases mean the average house is now worth £173,746, increasing in value by £45 daily, or more than three times as fast as the 2005 rate of £12.50.
This time last year Nationwide predicted annual inflation of "in the low single digits".
Looking forward, the lenders says the stronger than expected figures over the past month will add fuel to the MPC's fire in terms of its discussions of another possible interest rate hike early next year.
Supply remains tight, which is why it expects price increases to remain strong in the next few months, before affordability issues start to moderate the market.
Still, citing factors such as use of migrant labour, Nationwide believes the key base interest rate of 5% has peaked for now, given there is likely to be a "lid" on wage inflation.
"We can therefore expect to see a few months of double-digit annual house price inflation in the first half of the year. However, increasingly poor affordability, the impact of higher mortgage rates and the likelihood that fewer parents will be willing or able to help their children out will cause the rate of house price growth to move back into single digits in the latter part of the year"
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