Properties above shops 'a good investment idea'

Landlords should consider investing in residential property above commercial units, a new report argues.

In the past, many lenders have looked to discourage landlords from picking rental properties above shops by putting complex restrictions on the finance agreements.

David Whittaker, managing director of Mortgages for Business, explained: "If the property is above a food related premises, such as a take-away or restaurant, most lenders steer clear, making these flats a 'no-go' area for all but the most persistent investor.

"This is due to a number of factors such as smell, noise and unsocial working hours, all of which affect the future resale potential of the property and the property's letting potential."

However, some mortgage lenders are now waking up to the possibility that landlords could generate profits from properties above retail units and are beginning to offer more competitive deals to finance these buys.

Mr Whittaker continued: "Asinterest rates have risen, buy-to-let rent margins against mortgage payments have narrowed.

"To beat tougher rental yields, landlords could look at traditionally higher yielding rental property types and flats over commercial premises falls into this category."

A recent report from Investment Property Databank argued that landlords should think about investing in inner-city areas as these locations can still offer superb returns.