House prices continued to drop in January, according to a key industry survey, as demand was dampened by fears that an interest rate hike was looking more imminent.
A balance of 7% of surveyors reported a decline in new buyer inquiries last month, the Royal Institution of Chartered Surveyors (RICS) said, as speculation mounted over when the Bank of England would opt to lift historically low interest rates from 0.5%.
RICS said potential purchasers were cautious about "the outlook for the economy and the possibility of mortgage rate increases later in the year".
Economists suggested a rate hike was looking more likely after official figures earlier in January revealed a surge in the rate of inflation.
However, weaker than expected growth figures, revealing a contraction in the economy in the final three months of last year, dampened those expectations.
The Bank of England will set interest rates at its monthly meeting this week and will reveal their decision on Thursday.
Elsewhere, the RICS survey revealed a balance of 31% of surveyors reported a fall in housing prices in the month, however this has now improved for three months in succession and stands at its best level since July.
The survey follows two conflicting reports from mortgage providers Nationwide and Halifax, with the former reporting a drop in January house prices and the latter suggesting a rise.
RICS spokesman Ian Perry said: "The key indicators of market activity remained in negative territory in January, albeit a little less so than in December.
"Uncertainty over the prospects for employment, alongside the shortage of mortgage finance particularly for first-time buyers, continues to weigh heavily on transactions levels."
RICS also said there was a clear regional pattern emerging with London seeing a greater level of price resilience than the north of England and Midlands, where the market remains under greater pressure.
A balance of 59% of surveyors reported price falls in the East Midlands, compared to just 4% in London.
New instructions, which indicate supply levels to the market, were also moderately negative, with 3% more surveyors reporting instructions fell rather than rose - although this is an improvement from 14% in December.
But on a brighter note, surveyors remain cautiously optimistic about future prospects, with the balance of sales expectations edging up from 8% to 10%.Reuse content