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Close to half of the UK housing market has never fully recovered from the 2008 financial crash, according to FT analysis, and is now slowing or falling again in many parts of the country amid sluggish economic growth and concerns over Brexit. 

The FT has found that average inflation-adjusted prices in 158 out of 348 local authorities never rebounded to the peaks achieved before the 2008 crisis. Most of these areas are outside London, the east and south east.

Data supplied by Savills shows that since 1952 the market has been through about four property cycles — a rise in house prices followed by a steep drop. During these cycles, it has normally taken a little over nine years for inflation-adjusted prices to return to a new peak. 

Map showing when house prices in the UK recovered to 2007 levels

The aftermath of the 2008 crisis has proved different, however. According to an FT analysis of the Savills data, the average house in the UK has still not recovered to the pre-crisis high of £184,000 (£252,000 when adjusted for inflation) in the third quarter of 2007.

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FT analysis of data from the Office for National Statistics shows that a house bought in 2007 in the UK will, on average, have resulted in a loss of 1.4 per cent 12 years later. By comparison, a house bought at the end of the previous downturn in 1995 and sold 12 years later in 2007 would, on average, have increased in value by 170 per cent.

The property crash that followed the 2008 crisis did not hit the UK equally, however. In parts of London and the south-east, the post-crisis low came relatively quickly in 2009. 

But half the country outside of the capital, including 21 out of 22 local authorities in Wales and 69 out of 72 local authorities in the north of England missed the cycle altogether — in effect, experiencing a lost decade of house price growth.

Map showing when property prices hit their post-crisis low

This meant that a person buying a home in Cambridge 2007 could expect its value to have started to increase again by 2013, but in cities such as Birmingham, Manchester, Liverpool and Sunderland, a home bought in 2007 would, on average, still be worth less today than when it was bought.

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Emphasising the UK’s north-south divide, the 10 local authorities where buyers saw the lowest returns on their property investment were in the north of England, while the 10 local authorities that saw the biggest increase in prices were all in London. 

Even with the capital excluded the divide remains: three of the local authorities that saw the biggest price increases over the period are in the South East and seven in the East of England, which includes East Anglia and cities such as Watford and Cambridge that are popular with professionals commuting to the capital. 

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Analysis by the Financial Times has shown that buyers typically jump into the market when prices are high but are less likely to buy when prices drop.

In the lead up to the financial crisis, there was an increase in house prices in most local authorities. As the crisis took hold, prices fell in many local authorities, but there were also fewer buyers on those areas. 

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The FT’s analysis also shows that from 2009 there was a rise in the proportion of local authorities where prices were falling but sales increasing. This indicates investors were cashing in on the crisis.

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However, prices are now falling even in the south and east, with estate agents reporting that the prospect of a no-deal Brexit is causing caution among buyers.

The FT’s analysis shows that home buyers in the capital are likely to have seen the value of their properties decline since 2016, while in some cases outside London prices are lower now than in the aftermath of the financial crisis. 

Between 2014 and 2018, prices were on average higher in every local authority in England and Wales than in 2007. Now there are 26 that are lower — all of which are in the north of England.

While Brexit may have helped bring about the latest drops in property prices by affecting sentiment, the evidence is circumstantial. 

But since the Brexit referendum in 2016, buying has slowed, whether prices are rising or falling. The FT’s analysis shows how the number of areas with growing sales volumes shrank in 2018, and many agents have blamed this on fears that the UK could leave the EU without a deal.

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How well have you played the property cycle? Tell us in the comments below.

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