John Bentham and Marion Wood were relaxing in their lounge when they smelled smoke, which they quickly discovered was coming from the Chilli Hut takeaway below.

Moments later they were watching from the pub across the street in fear for their home as fire crews battled the blaze for more than two hours.

"We saw smoke coming from the electrical plugs in the living room and when I checked the bedroom and the bathroom there was thick, black smoke everywhere," John explained. "I rushed downstairs to see what was going on but the guys in the shop were already on the phone to the fire service who were there in about 30 seconds."

Three fire appliances and three specialist units arrived at the two-storey property on the corner of High Street and Chapel Street shortly after 8pm.

According to Lothian and Borders Fire and Rescue Service, 10 fire officers wearing breathing apparatus and using thermal imaging cameras fought the blaze, which by the end of the night had caused 40 per cent damage to both the takeaway shop and the four-bedroom flat above. A ladder and cutting tools were also used to gain access to the properties.

Reports suggest the fire started in a chimney in the back room of the Chilli Hut, formerly known as Quasim's, and quickly spread into the ceiling and then through the lathe and plaster walls of the first floor flat. The fire department, however, were yesterday unable to confirm the specific cause of the blaze.

John and Marion moved to Innerleithen last year to be closer to family and had spent the last few months redecorating the flat.

Serious damage to their home was contained to just three rooms but the distraught couple were forced to spend a sleepless night with Marion's mother in Lauder.

"I hardly got any sleep and when I called my daughters this morning I just burst into tears," said Marion returning to her burnt-out home yesterday.

"Coming back we were really worried because the police had told us to be prepared for the worst, but the damage wasn't as bad as we thought it might have been.

"It's devastating though. We've spent so much time decorating the place – these rooms were beautiful and I was really worried about some original paintings we had in the room and our lovely rugs. I'm not sure where they all are now."

"We got away lightly though," added John. "I've got a friend in Bolton whose house was raised to the ground recently, so we were lucky. It could have been much worse."

Innerleithen High Street was closed for four hours while fire teams tackled the flames. A spokesperson for the fire department described the blaze as "a substantial fire for a property of that type", and said it had posed a "serious risk" to residents.

However, no-one was injured and police say there were no suspicious circumstances surrounding the fire.

Mr Shah, who, according to local shop owners took over ownership of the Chilli Hut takeaway just two months ago, was yesterday unavailable for comment.