There is a huge gulf between the cost of building a house and its market value, according to new analysis from Direct Line SELECT Premier Insurance.

The findings show that the average sale value of a house is £144,000 more than its rebuild cost, with 41% 41% of a property’s value (£114,000) derived from factors such as: the quality of local amenities, transport links and schools, as well as demand for homes in the area.

Of the twelve major UK cities involved in the study, the cliché of ‘location, location, location’ is most apt in the capital, where homeowners typically spend an average of over £647,000 for a three-bedroom property – three times the average rebuild cost of £205,000.

The property premium in London (£442,571) is also higher than the average market value of homes across the UK.

Brighton recorded the second highest location premium after London, with residents paying more than double the estimated rebuild cost. This is followed by Bristol, Edinburgh and Norwich, all of which have location premiums of 60% or higher.

Interestingly, the research shows that the public have little to no idea of the amount it would cost to rebuild their property, with British adults estimating it would cost an average of £226,750 for a three-bedroom house – 38% more than the actual cost.

As a result, homeowners could potentially be using an inaccurate figure when buying home insurance, therefore increasing the cost of their building insurance.

Nick Brabham, head of SELECT Premiere Insurance, stressed the importance of valuing the rebuild cost of a property accurately.

“This will help to ensure you are suitably covered especially if your property has bespoke features, if it’s listed or made of non-standard construction materials,” he said.

“For many, the impact of under-insurance is only realised when it’s too late, but this is preventable.