House prices recorded their strongest increase in a single month for six years in May as a shortage of homes for sale strengthened buyer competition, a report has found.
Prices rose by 0.4% month-on-month, marking the strongest uplift since May 2007, with the drive coming "almost exclusively from London and the South East", property analyst Hometrack said.
House prices in London and the South East increased by 0.9% and 0.5% respectively month-on-month, while they rose more gradually with an average 0.1% uplift across the rest of the country.
Prices edged up month-on-month by 0.3% in East Anglia, by 0.2% in the South West and by 0.1% in the Midlands. They were flat month-on-month in the North East, the North West, Yorkshire and Humberside and Wales.
Lenders and surveyors have reported signs of activity lifting in the housing market following the launch of several Government schemes such as Funding for Lending which have given people better access to mortgages and lower rates. But Hometrack said the main reason for the price increases is a lack of housing for sale as home owners remain cautious due to the tough economic environment.
It said the signs of an improved market for sellers could spell more "unrealistic" sellers coming to market in the next few months with inflated prices, which would lead to a sales dip.
Evidence that sellers are finding it easier to stand firm on their prices was shown by the percentage of the asking price which was achieved, which was 94% on average this month. This marked the highest percentage since July 2010.
Across England and Wales, the volume of homes coming onto the market grew by 2.8% in May, but this was outstripped by an 8.2% increase in sales being agreed.
Prices in London are being pushed up by a gap between supply and demand which is at its widest in the English capital since spring 2009. Demand from buyers in London grew by 15% over the last six months, while the supply of homes coming up for sale has dipped by 0.6%.
Richard Donnell, director of research at Hometrack, said: "It is a lack of housing to buy that is driving the acceleration in prices. Respondents to the survey reported a lack of housing for sale as one of their greatest concerns in the market at present with one reporting the lowest levels of stock for 15 years."