I came across an interesting mortgage case recently that got the old grey matter going – and I thought I’d share it with you all as it helps illustrate a few important points in the whole debate over Islamic mortgages.
A friend of mine told me that he had got a fatwa (from a well-respected and well-known scholar) and decided to go for a conventional mortgage for the following reasons:
- It was cheaper for him to buy than to rent.
- It was better for him to settle down and get on in life to own a house, than to rent.
- Islamic mortgages are basically indistinguishable from conventional ones.
- Conventional mortgages are available under 90k, unlike Islamic mortgages.
- He would try to pay the loan off as soon as possible.
I have dealt with points 2 & 3 in detail in my two previous blogs on the topic here and here. But the above case is still interesting as it usefully illustrates two important situations in which certain scholars allow one to go for conventional mortgages:
- When buying (on a conventional mortgage) is considerably cheaper than renting.
- When an Islamic mortgage is just not available.
So let’s drill down into the detail.
My friend was buying a property for around £70,000 and was paying as much of a deposit as he could on it. To rent such a property he would be paying around £500 a month, and so in ten years he would have paid £60,000. On the other hand he worked out that in ten years he would be paying interest on the property of £10,000. Clearly then, it was financially better for him to be paying into a mortgage than paying rent.
The argument in (1) is that because it is cheaper to get a conventional mortgage than to rent, one should do so as a necessity to make things easy for himself and to settle himself in his life (e.g. getting married, having kids etc.)
However just stated like that, the argument is unconvincing.
This is because the fact that the halal is more expensive and cumbersome than the haram does not make the haram halal. There is definitely greater ease in getting a conventional mortgage for him (as he’ll end up with £50,000 more equity in a house than otherwise), but there is no great difficulty on him in this situation.
This is because he isn’t actually seeing that £50,000 (or £417 a month extra) as that is going directly into paying off his mortgage to the bank. Yes, he will get out £50,000 at the end of the ten years if he decides to sell up, but that isn’t the question here. Here the question is, is life harder for him right now due to his renting? And the answer to that in this case is no.
However, there may be (at least) two cases where the answer to that is yes.
The first is when, due to one getting a conventional mortgage, the overall payment one pays every month actually ends up going down. So for example if one is currently renting at £800 a month, but if one were to get a mortgage one could actually end up paying just £500 a month. This could then potentially be a case where renting is actually making it harder for him – especially if that extra £300 is genuinely the difference between breaking even each month and going into overdraft.
The second case is when the conventional mortgage allows him to access a larger home than he is in right now and he genuinely needs it. So for example a guy could have a large family and can only afford to pay £900 a month. This will only get him a 2-3 bedroom rented property. However if he were to get out a mortgage set out over 25 years, for the same monthly payment of £900 he can secure a 5 bedroom property instead. Again, here the conventional mortgage has genuinely addressed a key long term difficulty the person was in by allowing him and his family to live in appropriate accommodation for their size.
Having said that, these two arguments to go for a conventional mortgage are ONLY valid for someone who cannot go for an Islamic mortgage instead (due to arguments I highlighted in my previous blogs). But such situations are very rare.
This is because people who need to pay such large amounts of rent a month can generally get hold of a property worth over £90k and get an Islamic mortgage on that. If they can do this, then there is no excuse.
But in any case, let’s look at that very situation in more detail. What if you just can’t get an Islamic mortgage? You can only afford a property worth around 60-80k and the only way you can buy that is using a conventional mortgage as no Islamic mortgage company offers anything for houses below £90k.
The fact that you cannot get an Islamic mortgage is not alone enough to make permissible a conventional mortgage. The fact that you cannot get Lucozade and only get beer at a certain bar does not make it permissible to go for the beer. There must also be a further pressing need to actually need to go for the beer. So for example you may be dying of thirst, or in that entire area nothing else was available except beer and you cannot realistically leave that location, only then would necessity even approach the level required to make beer permissible.
We discussed two such cases above – the case of the eternal overdrafter, and the case of the person who lives in awful rented accommodation and who needs to live in better accommodation due to, for example, the health of his family (elderly and young in particular). For the former he is taking a little interest to avoid a lifetime of interest, and for the latter it is a case of genuine risk of ill-health.
Conclusions on a Conventional Mortgage
Conventional mortgages are almost always haram, and if you think that you are one of those rare cases where they may not be, then you should not just rely on your own thinking and justifying, you should consult a scholar whom you trust. But yes, there may be a vanishingly rare number of cases where they are permissible.
N.B. I am not a mufti and this is not a fatwa. However scholarly views and religious texts were considered in the preparation of this piece. This article is instead best read as starting a debate on an important contemporary issue, written from a relatively informed point of view. Your thoughts, criticisms, and corrections are as always highly welcome.