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Islamic Mortgage FAQs

What mortgage broker do you recommend?

We do not recommend any mortgage broker at this stage but we would flag that it is very easy to just apply to a bank directly. You can do so via www.islamicmortgage.co and send in your query to the bank most suitable for your situation.

Please also note that banks now have a legal duty to advise you on your mortgage and will go through in detail with you on what you can afford, how the product will work, what it will cost and risks. They will not advise you on other banks’ products but given Islamic mortgages are only offered by a very small number of banks, you will have a pretty solid advice experience still.

Can I contact you by phone?

We do not have a phone helpline at this stage. You can however email us via our contact us page.

You can also leave queries or voice notes to us on Whatsapp by adding our business account on +447535054920.

 

Can I speak to a mortgage adviser for my Islamic mortgage?

We are not mortgage advisers. You can however use our Islamic mortgage comparison engine and find out the best mortgage deal for you and apply through us directly to the banks.

Do any Islamic banks offer mortgages for Right to Buy Tenants?

Not that we are aware of unfortunately.

Which banks offer Islamic mortgage?

The following banks no longer offer Islamic mortgages (or never have):

  • HSBC
  • Lloyds
  • Al Buraq
  • Barclays
  • Santander

The following banks do offer Islamic mortgages:

  • Al Rayan (formerly Islamic Bank of Britain)
  • Gatehouse
  • Al Ahli
  • Heylo Housing (though they are an alternative mortgage provider and not strictly speaking a bank)

In this article we outline a full list of all the Islamic mortgage UK providers right now. You should also consider our Islamic mortgage comparisons page.

What’s an Islamic mortgage?

An Islamic mortgage allows you to buy a house in a sharia-compliant manner over a number of years without using any interest (riba). There are different types of Islamic mortgage products.

In the UK there are 3 types of Islamic mortgage products being offered:

  • diminishing musharaka, aka the Home Purchase Plan
  • Ijarah aka “rent-only” Islamic mortgages
  • murabaha mortgages

Diminishing musharaka, aka the Home Purchase Plan

This is the most common type of Islamic mortgage product you will see. It is also often referred to as the “Home Purchase Plan” or “HPP”.

The concept is pretty straightforward. You buy a percentage of the house with your deposit and that is yours. The rest of the house is the bank’s and they rent that to you.

Over time you buy the bank out and your rent decreases as you buy the bank’s stake out.

Eventually you are the full owner of the property and the bank disappears.

Of course, there’s a ton more complexity to it in practice. If you’d like to take a peak under the bonnet and see how the whole thing works mechanically and legally, see this article here. It has a detailed summary of the Al Rayan structure, but most HPP providers will follow a very similar structure.

Ijarah aka “rent-only” Islamic mortgages

This is the equivalent of the Home Purchase Plan apart from you don’t buy back the bank’s portion. At the end of the mortgage, you either buy the bank’s portion in full, or you sell the house to raise the money to pay the bank back.

Murabaha

This kind of mortgage is often used in commercial property finance structures by the Islamic banks (Al Rayan, Gatehouse, Al Ahli United, BLME etc) including buy-to-let mortgages as well.

Murabaha itself is a simple concept. The bank buys the property on your behalf, and then sells it to you immediately for a marked-up price, to be paid over a number of years. For more details on this structure, see here.

However, certain Islamic banks, e.g. Gatehouse, use commodity murabaha (also known as “tawarruq”) to structure their commercial property financing transactions. This is not ideal as an Islamic structure for reasons explained in this article. In a nutshell, this kind of structure is only in line with the sharia in form, but not in spirit.

You can compare the Islamic mortgages available in the UK here.

What is a Sharia mortgage

A sharia-compliant mortgage allows you to buy a house in a sharia-compliant manner over a number of years without using any interest (riba). sharia mortgages are commonly known as “islamic mortgages.

There are different types of Islamic mortgage products.

In the UK there are 3 types of Islamic mortgage products being offered:

  • diminishing musharaka, aka the Home Purchase Plan
  • Ijarah aka “rent-only” Islamic mortgages
  • murabaha mortgages

Diminishing musharaka, aka the Home Purchase Plan

This is the most common type of Islamic mortgage product you will see. It is also often referred to as the “Home Purchase Plan” or “HPP”.

The concept is pretty straightforward. You buy a percentage of the house with your deposit and that is yours. The rest of the house is the bank’s and they rent that to you.

Over time you buy the bank out and your rent decreases as you buy the bank’s stake out.

Eventually you are the full owner of the property and the bank disappears.

Of course, there’s a ton more complexity to it in practice. If you’d like to take a peak under the bonnet and see how the whole thing works mechanically and legally, see this article here. It has a detailed summary of the Al Rayan structure, but most HPP providers will follow a very similar structure.

Ijarah aka “rent-only” Islamic mortgages

This is the equivalent of the Home Purchase Plan apart from you don’t buy back the bank’s portion. At the end of the mortgage, you either buy the bank’s portion in full, or you sell the house to raise the money to pay the bank back.

Murabaha

This kind of mortgage is often used in commercial property finance structures by the Islamic banks (Al Rayan, Gatehouse, Al Ahli United, BLME etc) including buy-to-let mortgages as well.

Murabaha itself is a simple concept. The bank buys the property on your behalf, and then sells it to you immediately for a marked-up price, to be paid over a number of years. For more details on this structure, see here.

However, certain Islamic banks, e.g. Gatehouse, use commodity murabaha (also known as “tawarruq”) to structure their commercial property financing transactions. This is not ideal as an Islamic structure for reasons explained in this article. In a nutshell, this kind of structure is only in line with the sharia in form, but not in spirit.

You can compare the Islamic mortgages available in the UK here.

How does an Islamic loan work?

In Islam there are 3 kind of loans

  • A Qard hasan – this is an interest-free loan (your mum might lend you £500 to buy something but you have to pay it back).
  • a murabaha loan – This is where you ask someone else to buy an asset for you and then buy it off them for a marked-up price. So a bank could buy you a £100,000 house. You then buy it off them for £120,000 but tell them you will pay it back slowly over 5 years. You now own the house, but are in debt to the bank.
  • an Islamic mortgage – this is strictly speaking not a loan as you are “renting” the house from the bank rather than paying interest. However you are in a long-term contractual agreement with the bank to buy their portion of the house off them and have to pay rent all the while. So economically this can feel like a loan.

You can compare the Islamic mortgages available in the UK here.

In a nutshell, how does an Islamic mortgage work?

An Islamic mortgage allows you to buy a house in a sharia-compliant manner over a number of years without using any interest (riba). There are different types of Islamic mortgage products.

In the UK there are 3 types of Islamic mortgage products being offered:

  • diminishing musharaka, aka the Home Purchase Plan (this is by far the most common)
  • Ijarah aka “rent-only” Islamic mortgages
  • murabaha mortgages

Diminishing musharaka, aka the Home Purchase Plan

The concept is pretty straightforward. You buy a percentage of the house with your deposit and that is yours. The rest of the house is the bank’s and they rent that to you.

Over time you buy the bank out and your rent decreases as you buy the bank’s stake out.

Eventually you are the full owner of the property and the bank disappears.

Of course, there’s a ton more complexity to it in practice. If you’d like to take a peak under the bonnet and see how the whole thing works mechanically and legally, see this article here. It has a detailed summary of the Al Rayan structure, but most HPP providers will follow a very similar structure.

Ijarah aka “rent-only” Islamic mortgages

This is the equivalent of the Home Purchase Plan apart from you don’t buy back the bank’s portion. At the end of the mortgage, you either buy the bank’s portion in full, or you sell the house to raise the money to pay the bank back.

Murabaha

This kind of mortgage is often used in commercial property finance structures by the Islamic banks (Al Rayan, Gatehouse, Al Ahli United, BLME etc) including buy-to-let mortgages as well.

Murabaha itself is a simple concept. The bank buys the property on your behalf, and then sells it to you immediately for a marked-up price, to be paid over a number of years. For more details on this structure, see here.

However, certain Islamic banks, e.g. Gatehouse, use commodity murabaha (also known as “tawarruq”) to structure their commercial property financing transactions. This is not ideal as an Islamic structure for reasons explained in this article. In a nutshell, this kind of structure is only in line with the sharia in form, but not in spirit.

You can compare the Islamic mortgages available in the UK here.

How does a diminishing musharakah mortgage work?

This is the most common type of Islamic mortgage product you will see. It is also often referred to as the “Home Purchase Plan” or “HPP” in the UK

The concept is pretty straightforward. You buy a percentage of the house with your deposit and that is yours. The rest of the house is the bank’s and they rent that to you.

Over time you buy the bank out and your rent decreases as you buy the bank’s stake out.

Eventually you are the full owner of the property and the bank disappears.

Of course, there’s a ton more complexity to it in practice. If you’d like to take a peak under the bonnet and see how the whole thing works mechanically and legally, see this article here. It has a detailed summary of the Al Rayan structure, but most HPP providers will follow a very similar structure.

You can compare the Islamic mortgages available in the UK here.

How does an ijarah mortgage work?

This is the equivalent of the Home Purchase Plan (see below) apart from you don’t buy back the bank’s portion of the house every month. At the end of the mortgage, you either buy the bank’s portion in full, or you sell the house to raise the money to pay the bank back.

How does a murabaha mortgage work?

The murabaha mortgage is often used in commercial property finance structures by the Islamic banks (Al Rayan, Gatehouse, Al Ahli United, BLME etc) including buy-to-let mortgages as well.

Murabaha itself is a simple concept. The bank buys the property on your behalf, and then sells it to you immediately for a marked-up price, to be paid over a number of years. For more details on this structure, see here.

However, certain Islamic banks, e.g. Gatehouse, use commodity murabaha (also known as “tawarruq”) to structure their commercial property financing transactions. This is not ideal as an Islamic structure for reasons explained in this article. In a nutshell, this kind of structure is only in line with the sharia in form, but not in spirit.

You can compare the Islamic mortgages available in the UK here.

What’s an Islamic home purchase plan?

Diminishing musharaka mortgage, aka the Home Purchase Plan

This is the most common type of Islamic mortgage product you will see. It is also often referred to as the “Home Purchase Plan” or “HPP”.

The concept is pretty straightforward. You buy a percentage of the house with your deposit and that is yours. The rest of the house is the bank’s and they rent that to you.

Over time you buy the bank out and your rent decreases as you buy the bank’s stake out.

Eventually you are the full owner of the property and the bank disappears.

Of course, there’s a ton more complexity to it in practice. If you’d like to take a peak under the bonnet and see how the whole thing works mechanically and legally, see this article here. It has a detailed summary of the Al Rayan structure, but most HPP providers will follow a very similar structure.

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