The southernmost stop on the Victoria Line has been a pioneer for London’s regenerated neighbourhoods. Thanks to these efforts, Brixton has attracted an influx of younger residents. As of the latest census, adults under 30 years old now make up over a quarter (27%) of the borough’s population, 4% more than before. In fact, last year this age group made up almost 60% of people moving into the area, attracted by the colour, culture and commutability of SW2 and SW9.
The longer-term picture
It wasn’t until after the 2008 financial crash that Brixton began to cement itself as one of the most sought-after areas to live in Zone 2. As a ‘more affordable upcomer’ with easy links into central London, buyers and renters alike began to move in. As a result of the ongoing regeneration works and the area’s growing popularity with younger crowds, price growth here began outpacing the rest of London. Between 2008 and 2016 the average home in Brixton almost doubled in value, growing 83% across the eight years and outpacing the 57% price growth seen across Greater London.
However, like many of London’s priciest postcodes, growth slowed from 2016 onwards. This reflects the second stage of the cycle when prices started rising faster outside the capital.
More recently, higher mortgage rates have squeezed buyers in the most expensive markets as these movers tend to be most financially stretched. And with the rise of flexible working pushing people further out of the capital, similar to many of its neighbours, price growth in Brixton has stuttered. Average prices have dipped 0.5% over the last year but remain 11% up on 2019 levels.
Rising Rents
With its influx of younger urbanites, Brixton’s rental sector has been set ablaze. Now firmly an inner London staple, double-digit rental growth was more common than not over the past 18 months.
The average monthly rent for a flat in Brixton crossed the £2k mark for the first time last year. Today, the average local rent stands at £2,290 pcm after growing 8% since 2023 and 32% since 2019. With median earnings in the borough rising faster than all but four of London’s 33 boroughs, there’s likely to be some headroom for rents to continue growing here in line with our forecast of 8% by the end of 2024.
Over the last two years, landlords have had to grapple with soaring mortgage costs. In some cases, this has seen them go from making healthy profits to losses, putting upward pressure on rents.
Since 2016, there are 100,000 fewer private rented homes in England as more homes have been sold by landlords than new investors entering the market. Across London there were 32% fewer homes available to rent in February than before the pandemic, which has put further upward pressure on rents.
Strong rental growth combined with stagnant property prices have boosted yields to an all-time high. The average flat in Brixton achieved a 5.7% gross yield last year, up from 5.0% in 2022. And since mortgage rates have fallen into 2024 following their peaks in 2023, profit margins once again appear to be widening.
What's next?
Mortgage rates have already fallen this year, which will serve to support prices both locally and across the south of the country. Even small falls in mortgage rates will help landlords (and homeowners) balance their books, which should put a fall under further price falls this year. In places like Brixton, where yields lie below the London average, falling mortgage rates will be particularly welcomed by landlords.
We also think that we’re approaching the end of the current house price cycle. If history repeats itself, then it’s likely that property prices in London will start rising faster than those elsewhere in the country. We expect this to kick in towards the end of 2024 as mortgage rate falls accelerate.
Lower landlord costs combined with stretched tenant affordability should slow the pace of rental growth in 2024. Rental growth will also be cooled, but not stopped, by more would-be landlords entering the market, attracted by the appeal of higher rents and falling returns available from savings accounts.
Even so, higher landlord costs and a longer-term supply issue will mean that rents continue to rise faster than we saw pre-Covid, outpacing inflation too. We think that an era of higher interest rates will see rents rise over four times faster than house prices between 2023 and 2026, boosting yields further.
Longer-term, where interest rates settle after the Bank of England meets its 2% inflation target will probably have the biggest bearing on future house price growth locally. Markets expect interest rates to stay higher in the long term than most mortgage payers have become accustomed to over the last decade, which is likely to keep a cap on future house price growth and keep more would-be buyers renting for longer.
But history shows us that markets have been notoriously poor predictors of step changes in interest rates, meaning the medium-term future of mortgage rates is far from certain. If, however, rates continue to gradually fall from here on in, then we expect to see house prices return to growth from 2025 onwards.
