Mortgage approvals fell to their lowest level since January 2015 last month, figures from the Bank of England show.
The Bank recorded falls for both house purchase and remortgaging approvals, a signal that "the outlook for house prices and big-ticket household goods purchases has darkened", according to Pantheon Macroeconomics chief economist Samuel Tombs.
"Approvals likely will fall further over the coming months, given that new buyer enquiries continued to fall quickly in December, according to RICS. The slowdown in mortgage lending reflects both the recent rise in mortgage rates and the real income squeeze," he added.
Tombs said there was some good news for consumers, in that inflation "should moderate soon" - he expects CPI inflation to be back at the two per cent target by the end of 2018.
However, he warned: "Mortgage rates... likely will rise further. Banks' funding costs have increased over the last month; the five-year LIBOR swap rate has risen. Funding costs also will jump from the end of February, when new lending no longer will generate borrowing allowances for banks from the Term Funding Scheme.
"As a result, rising mortgage rates likely will ensure that mortgage approvals continue to fall this year."
The data comes as research published this morning revealed heavy discounting by homeowners desperate to sell their properties is pushing the capital into a buyer’s market.