The UK's booming property market showed little sign of coming off the boil after the Halifax reported a 1.7 per cent increase in prices in February.

In a month when interest rates fell to 3.75 per cent, the mortgage bank said uncertainty over developments in the Gulf had not shaken demand.

It said annual prices rose by 23 per cent compared with the same quarter a year earlier, although the Halifax stuck by growth forecasts of nine per cent this year.

Halifax chief economist Martin Ellis said February's figure confirmed that the housing market remained strong, with the Bank of England's interest rate cut reinforcing the support that mortgage rates have given the market.

He said: ''The factors that underpinned strong demand during 2002 remain firmly in place.''

A shortage of second-hand properties and the historically low level of house-building was also cited by the Halifax for the rise.

Mr Ellis said: "Significant supply shortages persist despite recent modest increases in the numbers of both second-hand properties being put on to the market and new homes being built.

"These shortages are likely to remain during 2003."

The report said that activity levels continued to be strong with property transactions in England and Wales two per cent higher in January than a year ago.

But the Halifax said signs of a North-South divide had emerged as the market now appeared to favour buyers in the South but remained a seller's market in the North.

Mr Ellis said he expected the market to remain strong this year, but not at the current levels of growth.

He added: "The much sharper rise in house prices compared to average earnings in the recent past will, however, increasingly curb demand and cause house price inflation to moderate gradually over the remainder of the year."

The average price of a house is now £125,588, the Halifax said.