The label “London-on-Sea” is often pinned to any English seaside town with two boutiques and a half-decent restaurant. To describe St Leonards as such seems almost endearingly optimistic, yet in recent years there has been a huge upturn in the number of newcomers flocking here, drawn by its stunning Victorian and Regency architecture, active artistic community, glorious surrounding countryside and relative affordability.

“Out of eight people in my yoga class, six have recently moved down from London,” says Leonie Hartard, a 38-year-old costume designer who arrived three years ago from East London, along with her partner, Ollie Crowther, an illustrator, and their three daughters, Orla, 3, and twins Edie and Elsie, 2. They ended up in nearby Bexhill, but are desperate to move to St Leonards because there is so much more going on here. “There's always a festival or free event,” Ollie says. “For some reason people of the same mould seem to gravitate here, and they're always putting on stuff.” It's true that the town attracts a certain type of Londoner - not the kind who trips around Chelsea wearing Jimmy Choo but the ones who live in places such as Hackney and Brixton and want to be somewhere creative, lively and just a little bit edgy. It has much in common with 1990s Hoxton: a large community of artists who hold spontaneous exhibitions in empty spaces, lots of interesting buildings ripe for conversion, a buzzing social scene and some glaringly obvious economic problems.

These have improved since the late 1990s, when the place became a dumping ground for asylum-seekers and the homeless, a town synonymous with slum landlords, unemployment and decay. Property prices collapsed. But an active regeneration programme and strong community mean that change is happening fast.

Spike Smilgin-Humphries is typical of the new breed of locals wanting to help to make St Leonards a better place. She moved here 18 months ago from Oxford and loved the town enough to want to invest in it, so in September opened QOL - aka Quality of Life - a smart deli/café in Norman Road. Already it is the community's meeting place, its clientele a friendly mixture of local artists, photographers and designers.

Norman Road has been tagged the Portobello Road of St Leonards for its candy-coloured buildings and thriving antiques trade. It was not always thus. Residents remember the not-too-distant past when drug addicts lolled outside junk shops. Now, though, chi-chi interiors stores sell imported French furniture alongside classic midcentury design. An upscale art gallery, Black Lark, opened in June, attracting the likes of the comedian Vic Reeves, who will exhibit his own work in Coastal Currents, a local arts festival in September.

“This part of town has changed so dramatically since I moved here in 2000,” says Christine Howard, an American film consultant who came to St Leonards via London, Paris and Los Angeles. “Back then it was a no-go area and I was told never to go near Warrior Square as it was dangerous for women.” Ah, the notorious Warrior Square. Then a place where asylum-seekers had pitched battles with local down-and-outs, now speedily gentrifying as people appreciate the beauty of its five-storey Victorian houses with wrought-iron balconies, overlooking genteel gardens. Graham Norton has just bought a flat here.

But pretty squares and tasteful homeware shops are far from the whole picture. The Poundstretchers, bookmakers and fried chicken outlets remain a short stagger away, while the pedestrianised centre of St Leonards is described variously as “quite scary” and “hoodie hell”. “You don't go into the new town unless you have to,” Leonie Hartard says.

There are, in effect, two worlds emerging. And they collide frequently, as at last month's fine-foods market, which took place outside the station, to the bemusement of the local drunks who hang out there. But newcomers relish the wide variety of people - it's one of the reasons they moved here. “You get sea-dogs mixing with tweeds mixing with artists, along with some really outlandish characters,” Crowther says. “It keeps it interesting.”

It also keeps prices low, for the South East. Locals complain that these have shot up in recent years, but still, your money goes far here. “We just sold the most wonderful two-bed flat on Grand Parade, with sea views, for £115,000,” says Alex Atabey, director of the estate agent Bairstow Eves. “By London standards, it's peanuts. You can still get a one-bed seafront flat for £89,000, and the most expensive house on our books is a 1930s, five-bed detached for £399,000.”

The market is quieter than a year ago, he confesses, with prices slightly lower. “Sellers are having to be realistic, but we probably have ten clients exchanging over the next few weeks, which isn't bad for a local branch.” He has enormous faith in the area. “The thing about St Leonards is that it was always the posh part - the Hove, if you like - so the architecture here is superior to Hastings,” he says. “It had a fall from grace, but everything is in place for it to come right back up.”

Fast facts

The average price of a property in St Leonards is £172,700, according to Hometrack. Prices rose by 6.1 per cent over a year.

There are 22 properties for sale there for less than £100,000.

The most expensive street in St Leonards is Beauport Gardens, where prices average £417,600 (source: mouseprice.com).

The least expensive is Warrior Gardens, an average of £85,100. It takes about 90 minutes by train to London Bridge.

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers