Wimbledon, renowned globally as the home of tennis, is a distinguished suburb in Southwest London that blends a bustling village atmosphere with the tranquillity of expansive green spaces, all within 20 minutes of Waterloo. While its roots stem back to medieval times when wealthy city merchants began building large rural homes around the common, today the area is essentially split into two: Wimbledon Village and Wimbledon Town. The array of housing in the area, with a combination of large period houses and modern flat developments lining the leafy streets, means that both city commuters and retirees alike rarely leave SW19.
The last 18 months
Like many prime London suburbs, house price growth came to a halt in 2023. Over the last 12 months, the average price of a property in Wimbledon dipped 2.6% compared to 2022, taking prices back to where they stood in late 2021. However, despite these small price falls, a quarter of homes sold in Wimbledon last year changed hands for over £1m.
Higher mortgage rates have squeezed buyers in the most expensive markets as these movers tend to be most financially stretched. Upsizers, in particular, felt the pain and put their plans to move on ice last year. Consequently, the values of larger homes in Wimbledon and across the rest of Great Britain fell faster in 2023 than those of smaller properties. This wiped out some, but not all, the capital growth seen post-Covid amid the “race for space”.
Meanwhile, values of smaller properties have weathered the storm a little better as some buyers downsized their expectations in the face of much higher borrowing costs. This is also partly a reflection of the fact that these homes saw considerably less price growth since Covid began, and so flat values had less far to fall. Since 2019, the average price of a house in Wimbledon rose more than seven times faster than the average price of a flat (15% v 2%).
The longer-term picture
Since the current house price cycle began in the wake of the 2008 financial crash, property prices in Wimbledon have outperformed both London and the rest of Great Britain. The average home in SW19 has nearly doubled in value (+99%) since 2008, outpacing 89% growth in London and 59% across Great Britain.
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. However, Wimbledon’s appeal with prime central London leavers, particularly post-Covid, has supported prices during the last five years.
Rising rents
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. However, rents responded quickly, and we saw record-breaking rental growth across Great Britain last year, with the biggest increases seen in the capital.
Rents in Wimbledon have followed suit, rising 7.9% on average between 2022 and 2023, with the average rent on a newly let property just under £2,500 pcm. This put the average rent in SW19 up 35% or £654 pcm compared to 2019.
However, strong historical capital growth alongside local wealth has meant that Wimbledon landlords, who are disproportionately more likely to own their buy-to-lets without a mortgage, have been more sheltered from these rising mortgage costs. This has served to keep rental growth a little cooler than in other parts of the capital.
Traditionally, landlords here have seen most of their long-term returns come from capital growth, but in the short term, it's rising yields that look set to make up an increasingly large chunk of investor's returns. Rents have outpaced house prices and are expected to continue doing so over the next few years. Consequently, the average new buy-to-let in Wimbledon last year achieved a record 6.0% gross yield, up from 4.3% in 2019.
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 Wimbledon, 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.
