Islamic Mortgage
Islamic Mortgage UK has partnered with industry leading Sharia Compliant Finance providers to provide you with Halal mortgages, finance products and services within the UK.
What is an Islamic Mortgage?
You might be wondering what is an “Islamic Mortgage”? An Islamic mortgage is a Sharia compliant method of purchasing a property. This purchase is done in a way which avoids interest, speculation and uncertainty – factors of traditional mortgages which are prohibited within Islam (Haraam).
Why take out an Islamic Mortgage?
Islam is a way of life – not just a way of thinking! Evidently, we need to do our best to live in accordance with the teachings of Islam. One of the most serious prohibitions in our faith is the use of interest. In the past, Muslims living in the West have either decided to rent their homes, or taken out conventional interest-bearing mortgages due to the lack of Sharia compliant alternatives.
These conventional methods use interest at their core, to calculate the cost of borrowing. However, now that genuine Sharia compliant Mortgages (approved by leading Islamic Finance Authorities and scholars) are available, these options must be considered in order to live our lives in a manner which is pleasing to our Creator.
How does an Islamic Mortgage work?
In a conventional mortgage, the bank provides the finance to the purchaser on the condition that the amount borrowed (plus interest!) will be repaid over a set period of time. The bank has no ownership of the property, however, they will secure this loan against the property. This will be done by the bank placing a legal charge on the property which simply means that if you fail to make regular payments, they are able to make a repossession without any issues.
An Islamic mortgage on the other hand is quite different to this. There is an agreement of shared ownership – this means all parties will own a respective property share which is equal to the amount they contribute towards the property. The Islamic Lender will be the registered owner of the property. The customer will then lease the part of the property that the bank owns and pay a monthly rental payment. At the end of the finance term, if all payments have been made, then full ownership of the property will be transferred to the customer.
The monthly payment will contribute to repaying the borrowed sum and the banks profit. The purchaser’s share in the property will increase with each payment and therefore, the banks share will decrease.
Some Islamic lenders will offer a rent only option. The ownership in these is also based on each party’s contribution to the property purchase. However, during the mortgage term, the purchaser pays rent which is how the bank will make their profit. This rent will not contribute to the loan repayment.
The outstanding balance will need to be paid once the term has ended. In both instances described, the full property ownership is given to the customer once the agreement has ended if all outstanding balances have been cleared.
What are the key differences between an Islamic Mortgage and a Conventional Mortgage?
Shariah Finance is based on the principle that money is not generated from money i.e. interest. However, if a profit is made as a result of a transaction between the vendor and buyer in which ownership is transferred, then this is acceptable.
Within a conventional mortgage, the lender will provide finance for the home and charge interest on this loan. Within Shariah finance methods, the Islamic lender will always own the property at some point and later return this to the purchaser . Shariah mortgage schemes generally fall into one of two categories:
- The bank gives ownership to the purchaser at the end of the term of the agreement and purchaser will pay a lump sum at the end to take ownership after having paid rent during the term.
- Alternatively ownership will be passed on after the purchaser has agreed to pay for the property on a deferred basis over the term agreed upon, the repayments will cover the original cost of the property and the profit or rent which has been pre-agreed.
The key differences mentioned above distinguish these mortgages from the conventional interest bearing mortgages. Furthermore, these mortgages have been deemed acceptable and have been approved by leading Islamic scholars in finance. Any of the Shariah banks we work with will be glad to provide you with the details of their Shariah compliance upon request.
What we offer you?
If you are looking to buy a house with a Shariah Compliant Mortgage you have come to the right place! The fact that you are visiting this website suggests you are aware of the prohibition for a Muslim to give or receive interest (Riba). As you will be aware there are many verses in the Holy Quran (e.g., 2:276, 2:278, 3:130, 4:161 and 30:39) and Ahadith (Prophetic Narrations) that clearly prohibit the use of Interest.
Do you qualify for a Shariah Compliant Mortgage?
All you need to do is complete our short online form! and a member of our team will get in touch with you!