Sharia Mortgages

Under Sharia Islamic law, making money by charging interest is forbidden. Historically, Muslims who wanted to practice their faith were excluded from buying properties as traditional UK mortgages were not Sharia compliant. As a result, a number of lenders have developed Sharia compliant mortgages or Home Purchase Plans (HPP) to cater for this niche market. These products are available to Muslims and non-Muslims.

There are three types of Home Purchase Plans available in the UK:

1. Ijara, which is a lease to own plan: Here the bank buys the property and you agree to lease the property from the bank over a fixed term. At the end of the term, the bank will transfer ownership of the property to you.
2. Musharaka plan, which means partnership. The property is jointly purchased with the bank (e.g., bank owns 80%, you own 20%). You then agree to increase your share by making monthly payments to buy out the bank’s 80% share over a fixed term. So over time, your share increases and the bank’s share decreases. Also known as Diminishing Musharaka.
3. Muradaba, meaning profit, is where the bank buys the property and sells it to you at a profit. You then make monthly payments over a fixed term. For example, the purchase price is £100,000; the bank buys it for £100,000 and sells it to you for £125,000. You pay the bank £125,000 over a fixed period.

This is a niche area but there are quite a few lenders offering Sharia compliant mortgages:

ABC International Bank: offer Ijara and Musharaka mortgages

Ahli United Bank (AUB): offer Ijara Mortgages

Islamic Bank of Britain (IBB): offer Ijara and Musharaka mortgages

United National Bank (UBL): offer Ijara Mortgages

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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