Property Week's annual Hot Housing Index bumped the North Yorkshire spa town up from fourth place in 2016.
It was beaten only by Scottish capital Edinburgh and well-connected Crewe in the north west, which is to be the site of a HS2 station.
The Index ranks towns and cities based on criteria such as affordability, employment opportunities, schools, amenities and internet connectivity.
Leeds rose from 25th position to enter the top 20 at number 14 this year, while York jumped from 50th to 20th.
Beverley remains in the top 20 places to live, but the East Yorkshire market town has dropped from seventh to 16th. Huddersfield has fallen from 34th to 43rd.
The changes are explained in part by the inclusion of a new criteria for judging - 'propensity to move', which measures how often young professionals climbing the career ladder move between rented accommodation before buying a property themselves. Large cities with young populations such as Leeds, Edinburgh, Cardiff and Glasgow scored highly for this factor, which acts as a yardstick for the opportunities available in an area and its pull for younger demographic groups.
Harrogate received the highest rating of A for its employment rates, school provision and amenities. However, it scored lower ratings for affordability, internet quality and public transport, which was awarded a D, possibly due to the town's rural location.
Leeds received its A scores for propensity to move, public transport, amenities and schools.
Beverley's tumble down the table can be explained by its E rating for propensity to move, reflective of its small size, rural setting and older population.
London boroughs rarely make the chart because of their high house prices, but one area, Wandsworth, has this year cracked the top 50 due to its high propensity to move score.
Eleven areas of Scotland scored highly for affordability, including fifth-placed Aberdeen and Hamilton in South Lanarkshire, which was also in the top 10.