Ever thought about investing in a flat above a shop? Probably not.

The notion of trying to find a tenant willing to live above your local chippie doesn’t leap out as a winning investment strategy. Bear with me, though, because for landlords, a flat above a shop might be a smart move.

Admittedly, there is a lot of residual prejudice. A friend of mine once lived above a Thai diner – his flat smelt permanently of chilli noodles. And my brother-in-law once rented a place above a bakery. While the smell of fresh bread was delicious, the timing of its collection was not – the delivery vans used to arrive every morning at 3am.

If you buy a place above the right sort of shop, however, tenants may find it surprisingly tempting. Imagine crisps and milk available around the clock. Certainly, the convenience factor of living on the high street might be a huge draw.

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But the particularly compelling reason for finding such properties desirable is that lenders have suddenly become all warm and cuddly about giving out buy-to-let loans for places above shops – an important point to consider, given that they are cooling off rapidly about some other locations. Previously, if you wanted to buy something above commercial premises, you had to go down the tiresome route of a commercial mortgage, priced individually; and it would often be far more expensive than a normal buy-to-let mortgage, with less flexibility.

So, why have lenders changed their tune? “They have got a bit more pragmatic,” says Jonathan Moore, marketing director of Mortgages for Businesses, a bespoke buy-to-let broker. “Flats above shops are fast becoming an area that we are willing to fund.”

Why? Pure economics, basically. “A flat above a shop will tend to be cheaper, by the square foot,” says Moore. “On average, though, they are a bit bigger. Most flats above shops are really quite generous and well built, so you can probably get two or three tenants in with ease. This means that, as a landlord, you are getting more for your capital – which means, of course, a higher yield.” Aha!

Leo Appiah, 41, is a professional landlord from Welwyn Garden City. Four years ago, he paid £150,000 apiece for two three-bedders, and £125,000 each for a couple of two-bedders, in locations above shops in north London. “Two are above an internet cafe, and two are above a motorbike accessory shop,” he says.

Appiah manages to get an astonishing annual rental yield of about 7.5% for them. How on earth does he manage this? “Because they were much cheaper than anything comparable in the same location,” he explains, “and I rent them out for the going rate.”

Robin Curtis is the director of Windmill Residential, a property-management agency in west London. He manages 75 properties and owns 15 others, one of which is a big one-bedroom flat above a shop close to Notting Hill Gate Underground station. Very Hugh Grant. Very Richard Curtis. Don’t tell me he’s above that travel bookshop. “Er, no. It’s actually above an off-licence,” says Curtis (the landlord, not the screenwriter). He bought it 18 months ago for £250,000. “In the past, I’ve looked at flats above shops, and it’s not that buying them was impossible, it’s just that fewer lenders would do it. They were paranoid about the insurance – things such as the fire risk of buying a flat above a restaurant. Here, however, there is no cooking on the premises.”

Curtis rents out the Notting Hill Gate flat for £1,350 a month, which he says gives an annual yield of 4.5%. Its value has risen by £100,000 since he bought it, he adds. He has only ever had one tenant, who has had no problems with the noise levels of the area.

“When tenants rent a property above a shop on a high street, they accept that it will be noisier than a house on a quiet street,” Curtis claims. “Anyway, the flat is 50 yards from the Tube, which is a big bonus.”

So far, so good. A word of advice, though: if you are tempted by the seemingly healthy yields and central locations of the average above-shop flat, you must watch out for the tenure. All flats above commercial enterprises are leasehold, because the freehold will be owned by the person who owns the entire premises. “You can extend the lease quite easily, but you can’t buy the freehold in the same way as you might do with an ordinary converted house,” says Curtis, who has to stump up a service charge of £1,000 a year to the freeholder of the Notting Hill Gate property.

Are we landladies just scraping the bottom of the barrel here? With rising interest rates and a potentially static market, bar goings-on in prime central London, are buy-to-let devotees so anxious to continue their business that they will look at things they wouldn’t have dreamt of considering in happier days?

“The portfolio guys, the professional landlords, are having to be a bit more savvy about yields,” Moore says. “So, in order for them to continue making money, they are having to look at houses of multiple occupancy or anomalies, such as flats above shops. And lenders are willing to service them.” Ah, necessity. As well as being the mother of invention, it is also the mother of mortgage provisos, it seems.

buytolet@sunday-times.co.uk

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