House prices in Cambridge increased at the highest rate in the country last year, outpacing even London.

According to a report released yesterday by Hometrack, the UK’s leading residential property market specialist, the average value of a home in Cambridge rose from £348,000 to just under £400,000, an increase of 14.4 per cent.

The report measured the growth rates and average prices for 20 major cities in the UK; London, in second place, experienced an annual growth rate of 13.8 per cent, followed by Bristol with 12.8 per cent.

However, average house prices remain highest in London, pushing up to £455,000 this year.

Although prices may be rising rapidly, the numbers of residential property sales in both Cambridge and London are expected to be lower, as the scarcity of homes coming onto the market as well as their decreasing affordability limit the overall number of homes that can be sold.

Richard Donnell, Hometrack’s Insight Director, said: “With cities the focus of economic and demographic change, it is no surprise that city-level house price inflation continues to run ahead of UK house price growth, which has also risen to 7.9 per cent. The performance of house prices across these cities reflects the scarcity of supply and underlying demand for homes”.

This analysis was echoed by Adrian Whittaker, Sales Director at New Street Mortgages, who commented that the high rate of growth is “representative of a market that is becoming more competitive”, in what he characterised as an “environment of rising demand and limited supply”.

Jeremy Duncombe, Director of Legal & General Mortgage Club, added that increasing house prices “demonstrate that housing demand is continuing to exceed supply, pricing potential buyers out of the market.

“The significant disparity between the prices of homes in different areas of the UK is particularly concerning as it forces people to buy further away from their first choice location, or move to a property which may not best suit their specific needs, potentially disrupting their lifestyle.

“More houses need to be built around UK cities to enable people to live in their desired areas.”

The rising demand may be fuelled by property investors, whom the report shows made one in five of all residential purchases last year.

Mr Donnell further commented: “Cambridge, Oxford, and London have been pretty much on the same trajectory for quite some time.

“There’s been a lot of new housing in the Cambridge area, such as at Trumpington Meadows, and between 30 and 40 per cent of the sales in recent times have been new-built homes.

“There’s also been a lot of employment growth... and that is fuelling housing demand. It’s also true to say Cambridge is a kind of extension of London, just an hour up the railway line, so prices are going to reflect that.”