Parents who bought flats for their student children last year have seen prices in Oxford soar by 25 per cent, according to an Oxford estate agent.

Richard Thomas, of Knight Frank, said that although rental yields had fallen as a result of an oversupply of rented homes, Cherie Blair was part of a growing trend of parents buying flats for children.

In its annual review of the property market, Knight Frank says that its own research supports the Land Registry's 25 per cent figure for the city.

A national report by website Rightmove said on December 16 that property prices in London had fallen by 2.6 per cent over the past month.

But Mr Thomas said he had seen no sign of a drop in prices in Oxfordshire.

Last year, prices rose by 13.45 per cent in Oxfordshire as a whole.

Although first-time buyers were being forced out into the periphery of the city, Mr Thomas said central and north Oxford had an enduring appeal.

He said: "Strong demand emanates from the international schools and colleges, as well as from parents of students seeking an alternative form of secure investment while their offspring complete their studies."

The city's importance as an academic centre, plus its efficient local public transport system and good road and rail links, ensured that there was a constant demand for homes, which had not been matched by an increase in supply.

He added: "We have noticed a trend for downsizing among some homeowners, attracted to the concept of owning an easily maintained new home and using the residual equity to finance a second home."

Bradford & Bingley bank has reinforced predictions of a slowdown in the housing market, warning of "significantly lower" price inflation next year.

Housebuilder Berkeley last week indicated it was becoming harder to sell single detached houses in the home counties, and large apartments in London.

A report from Capital Economics, reportedly being published this week, is believed to predict that over the next three years the market will fall by 10 per cent.

However, Bradford & Bingley said that, despite predictions of slower growth, low interest rates should underpin the market. Chief executive Christopher Rodrigues said house prices were already falling in London, while price inflation had slowed in the south of England.

"These are good things as there has been a degree of irrational exuberance and the rate of growth needs to slow," he said.

"The customer is getting sensible and looking for value. Our best guess would be that house prices will grow in the low single-digits next year."