HOUSE prices rose 1.1% last month, taking the annual rate of growth to a 10-month high of 5.3% according to Nationwide building society.

However, Bank of England figures also released last week showed that mortgage approvals dropped in February for the first time since 2004. So some commentators believe the recent pick-up in the housing market could be beginning to stall.

After a sluggish start to 2005, the property market began to pick up last autumn. August’s interest-rate cut helped kick-start the market and confidence improved as fears of a crash subsided. The recovery has continued and the strength of the rebound has surprised many.

Fionnuala Earley, group economist at Nationwide, said: “The housing market seems to have shrugged off bad news about job losses and downside risks to economic growth. The strength of the housing market has become one of the key factors in the Bank of England monetary policy committee’s reluctance to reduce interest rates. The pick-up in prices in March continues the upward trend we have seen since the autumn, which has been supported by a solid return of buyers.”

The average house price is now £162,083 according to the building society — £8,000 more than this time last year. Estate agents in some areas are reporting the strongest activity since 2002. London seems to be leading the revival. Prices at the top end of the market in central London have surged 11.7% over the last 12 months.

Liam Bailey at Knight Frank said: “This is the strongest annual growth since June 2002. People are moving less frequently because the associated costs are so high, so I think shortages of stock will continue to dominate the market. Our 7% growth forecast for prices in prime London locations in 2006 is looking increasingly conservative.”

Primelocation.com, a property website, reports that available property in central London is at an all-time low. The number of properties on the market is 24% lower than this time last year. This shortage of stock is pushing prices higher. In some areas of the capital, such as Westminster and Kensington & Chelsea, a terraced house will now set you back more than £1m, according to Hometrack, a property consultancy. Areas that are performing strongly include Belgravia, the City and Docklands, and southwest London.

Conditions seem to be similar with top-end country houses. Richard Gayner at Savills, an estate agent, said: “The market is the strongest it has been for five years. Country properties didn’t rise as sharply as the rest of the market during the boom but the amount of wealth in the system has grown significantly over the past three years.

“Things were slow at the beginning of last year because people were worried about future house prices but confidence has returned. The best houses have risen in value by about 10% over the past six months and it wouldn’t surprise me if we see another 10% increase this year.”

However, prices are not rising to this extent everywhere, so it seems unlikely that we will see a return to the double-digit annual growth seen between 2002 and 2004. Rightmove, a property website, said the average number of properties estate agents have on their books is 63, down from 72 last August.

At the height of the boom they typically had just 40 properties for sale. However, the general lack of supply means that if you are thinking of moving, now could be a good time to sell. Some agents are reporting sales being achieved in days, and there have been instances of sealed bids in London because demand for certain properties has been so great.

These buoyant conditions may not continue for much longer, though. And much will depend on where in the country you are.

Miles Shipside at Rightmove said: “Affordability is stretched as prices are at record levels, so I can’t see them continuing to rise from the current level. I think we’ll settle back to a more stable environment in the summer.”