Sharia Mortgages

They are, in fact, home purchase products and are often called ‘home purchase plans’ or ‘home finance’.

How do Sharia-compliant home finance plans work?

Sharia-compliant home finance products allow you to get on the property ladder while still  being Sharia-compliant. Islamic mortgages involve buying a property in partnership with a bank, rather than borrowing money and repaying it with interest. They are based upon the Islamic finance principles of co-ownership (Diminishing Musharaka) and leasing (Ijara). A third type of plan is available called Murabaha, but this is less commonly used for home purchases in the UK.

Ijara

An Ijara mortgage is the most popular and affordable option for most people as you do not need a large initial payment. With this arrangement, you pay off a part of the purchase price plus an agreed amount of rent each month.

How it works

• First contact us, in order to distinguish your maximum affordability amount and the most suited Sharia compliant lender tailored for your needs.
• Then, you find a home you want to buy and agree a price with the vendor.
• The bank then buys the property on your behalf and you enter a 'promise to purchase' agreement with the bank. The title deeds of the property will be in the bank's name.
• You will then make monthly payments to the bank. Part of each payment will go towards paying for the home, and the rest will be a rent payment. Your rent payments may be reviewed once or twice a year and may go up or down.
• The bank will give you an occupancy agreement, which will set out the terms and conditions of the lease.
• Once you have completed the term and bought the property back, ownership is transferred to you and you no longer need to pay rent.

Musharaka

With a Musharaka mortgage, you own a share of the property and the bank owns the other share. 

How it works

• First contact us, in order to distinguish your maximum affordability amount and the most suited Sharia compliant lender tailored for your needs.
• Then, you find a home you want to buy and agree a price with the vendor.
• The bank buys the property jointly with you.
• You pay a deposit.
• You then pay rent on the proportion of the property owned by the bank as well as buying more shares in the property.
• Eventually, you will own the bank’s share of the property as well as your own.

Murabaha

With a Murabaha arrangement, the bank buys the property on your behalf. It then sells the property to you at a higher price. This is a less popular option in the UK with only a few lenders offering it.

How it works

• First contact us, in order to distinguish your maximum affordability amount and the most suited Sharia compliant lender tailored for your needs.
• Then, you find a home you want to buy and agree a price with the vendor.
• The bank buys the property on your behalf.
• The bank then sells the property to you at a slightly higher price. This price will take into account the value of the property, the length of the repayment term and the amount of deposit.
• You pay a deposit (normally at least 20%).
• The property is registered in your name, and you sign a contract agreeing to pay the bank the sale price.
• You repay the remainder of the debt in fixed instalments until you own the property completely.

Where to find your Islamic mortgage

There are several banks which operate under Islamic principles and offer a range of products and services. In addition, several larger high street banks also offer ‘Islamic windows’, which provide services based on Islamic principles. It is wise to choose a mortgage broker with experience of this type of mortgage alternative to help you choose the most suitable product for your circumstances. Islamic mortgages and home purchase plans are regulated by the Financial Conduct Authority, meaning that all providers are legally required to protect your interests.

Do you have to be Muslim to get an Islamic mortgage?

It is perfectly permissible for non-Muslims to take out Sharia-compliant products. In fact, these products can be attractive to anyone for whom ethical banking is an important consideration.

Contact us on 0330 120 1402