Missing medieval art masterpieces thought to be worth at least £1m have been discovered in the spare room of a house in Oxford.

Two 15th century pictures of Dominican saints were found at the home of 77-year-old Jean Preston, who lived in a two-bedroom terraced house in Trinity Street, St Ebbe's.

Miss Preston, a retired curator of medieval manuscripts, bought the works 40 years ago for £200 - the equivalent of £3,000 today - because she thought they were nice paintings.

She died, aged 77, in July, but before her death she learned that they were two panels of an altarpiece painted in 1439 by Italian Renaissance artist Fra Angelico, a Dominican friar.

Michael Liversidge, a family friend and former head of the history of art department at the University of Bristol, identified them as part of an altar the artist created for his monastery in Florence.

The altarpiece was thought to have been destroyed during the Napoleonic wars, but over the years, six came to light. Four are now in Germany, and two in collections in the US, but the discovery in Oxford has solved the mystery over the fate of the other sections.

Guy Schwinge, who valued the paintings for auctioneers, said: "As soon as I saw the panels I realised they had enormous potential. They are breathtaking works and have been regarded by some experts I've spoken to as among the most important finds in a generation."

The paintings, which have been given a conservative estimate of £1m for an auction next March, are expected to attract bids from around the world.

Miss Preston's nephew, who does not want to be identified but was in Oxford supervising the packing-up of his aunt's belongings earlier this week, said the news had come as a very pleasant surprise to the family.

He said: "I thought 'fantastic' when I found out. She has given a lot away and there wasn't all that much left for the family, so this makes up for it."

The health worker said the money would be divided between himself and his siblings, a social worker, a gardener and a mountain guide.

He said: "We're not all high-flying business people with huge incomes, so this is very nice."

His aunt retired to Oxford in 1996 after working in academic libraries in the US.

He said: "My auntie lived very modestly, totally unostentatious. She brought her clothes from a catalogue, ate frozen meals and went everywhere on the bus.

"When I used to stay with her I slept on a sofa-bed underneath the paintings. Who would have thought she had the equivalent of a winning lottery ticket in her spare room for all these years?"

A friend of 40 years, who lived just a few doors away from Miss Preston, said: "She was absolutely wrapped up in the world of medieval manuscripts and when she retired she spent much of her time visiting places that were of interest to her, because of her medieval knowledge."