HOUSE prices dropped for the second consecutive month in the South West but are leading to a rise in sales expectations, according to a new report.

The Royal Institution of Chartered Surveyors (RICS) said 26 per cent more West Country chartered surveyors reported prices falling during August, compared to 32 per cent nationally — the biggest negative reading since May 2009.

The RICS UK Housing Market survey said the downward trend in prices continued to be driven by a combination of increased supply and a moderation in demand from buyers.

Surveyors were reporting prices slipping in all regions apart from Scotland and the balance of newly agreed sales also fell, from 11 to minus-seven in the South West, and to minus-20 across the UK, the lowest reading since August 2008.

However, future expectations for sales had started to pick up, said the RICS, with 17 per cent more surveyors expecting sales to rise in the South West during the next three months, up from minus-2 per cent in July. The report said this rise in sentiment might be attributable to the view that a dip in house prices would begin to tempt more buyers back to the market over the coming months.

New instructions, which indicate supply to the market, showed 10 per cent more surveyors reporting a rise in instructions in the South West, down from last month's reading of 26 per cent. This suggested the initial surge of property to the market after Home Information Packs were abolished had now started to fall back.

Buyer demand, measured by new buyer inquiries, fell slightly in the region from minus five to minus-6 per cent, compared to minus-10 nationally, the lowest reading since January 2010. Significantly, the gap between these two series, which the RICS said was the best lead indicator of future prices, had narrowed for two successive months.

The average number of sales per surveyor remained broadly unchanged at 14 in the South West while the number of properties on surveyors' books fell slightly, taking the figure to 59 in the region and 67.8 across the UK. As a result, the sales-to-stock ratio — an indicator of future house price inflation — edged up to 24.7 per cent across the UK.

Looking ahead, surveyors' expectations for house prices during the next three months continued to deteriorate, with 34 per cent more expecting prices to fall in the South West. This was down from a net balance of 25 per cent in July.

Tim Maggs from the RICS said: "The results suggest prices in many parts of the country may be slipping but this does appear to be encouraging hopes among surveyors that sales levels could begin to pick up as a result.

"That said, there can be little doubt the restrictive attitude to the provision of mortgage finance will continue to limit transaction activity in the market.

"Our price indicators are telling a mixed story consistent with the uncertainty hanging over the economy, low interest rates and the continued lack of new housebuilding."