The Little Stranger, By Sarah Waters

It was Sarah Waters' misfortune to have published such a first-rate novel in the same year as Hilary Mantel's exceptional Wolf Hall, for without that particular competitor she may very well have bagged the top literary prizes. This complex, intelligent novel is one part ghost story, one part analysis of the postwar class system, one part creepy but convincing exploration of relations between the sexes, one part psychological profile of a disturbed individual.

The Little Stranger is set in the late 1940s, but occasionally feels like a late 19th-century novel, perhaps because of a feeling of homage to the ambiguities of Henry James's The Turn of the Screw. As in that story, we have an ancient house full of gothic intimations, as well as the ghost of a dead child. The war years have taken their toll on the stately home – Hundreds Hall – and the new Labour government's policy of cutting off grants to aid such homes have hindered any possible improvements. Into this environment comes a stranger, the likeable Dr Faraday, who once visited the house when he was a boy and sneaked into a room he wasn't supposed to.

The sexually ambiguous Faraday soon fancies himself in love with my favourite character in the book, the initially cold daughter of the house, Caroline Ayres. Waters tracks his hesitant courtship of Caroline with psychological acuity, and gives us just enough of Caroline's compromised position (even if Faraday isn't in their social class, marriage to him would help save the house from ruin and give her exacting mother a son-in-law) to render her sympathetic without being sentimental; as much a psychological victim of postwar austerity as she is a financial one.

Waters is that rare thing: a truly popular and well-loved author whose books also challenge and educate. This novel, for many, will be her best so far.