We have written extensively on Islamic mortgages at IFG (see here, here and here for example and definitely also check out our cool Islamic mortgage comparison tool), but we have previously kept the discussion generic. In this article, for the first time ever, we exhaustively go through Al Rayan’s Home Purchase Plan ( the “HPP”) in particular.
We are confident that nothing as detailed as this has been done for the Al Rayan HPP. In this article we examine the legal, Islamic, commercial and practical aspects of the HPP informed by:
- a close read of Al Rayan’s legal documentation;
- a wide-ranging survey of Al Rayan customers; and
- hundreds of discussions we’ve had with professionals, Al Rayan staff and scholars over the last few years. In short, this has been a time-intensive exercise for us, but inshAllah it is the best resource out there for Muslims wanting to properly understand the Al Rayan mortgage both Islamically and commercially.
Yes, we’re starting with a summary (there’s nothing worse than trawling through 4,000 words to find a one-paragraph summary tucked away!).
Our conclusion is that, given the current UK context, the HPP is the best Islamic mortgage option out there for those who qualify under the Al Rayan eligibility criteria. However we do have some bones to pick on both the commercial and Islamic side with the HPP as it currently is. We believe the HPP could be better from both a commercial and Islamic perspective if a few tweaks were made to it. We hope this article will help pave the way to making these changes.
From our personal perspectives, Ibrahim has an Al Rayan mortgage, while Mohsin has opted for Heylo Housing (but plans to shift to Al Rayan in the coming years). You should definitely also check our our Islamic mortgage comparison page. It is the only one of its kind in the UK.
Islamic & Legal Analysis
What is the structure being used here?
The Al Rayan Islamic mortgage is structured as a Home Purchase Plan. This is a regulatory structure that was specifically created through legislation to assist the Islamic finance industry in being able to provide an Islamic alternative to mainstream mortgages.
For a product to be a legal HPP structure, the bank must hold the buyer’s beneficial interest on trust to be delivered over to the buyer once he has paid off the amount necessary to buy the full interest in the property. At this point the buyer will be transferred over the legal title and will hold complete legal and beneficial interest in the property.
“Hang on, what’s all this beneficial v legal gobbledygook?” you might be saying.
Simply put, a legal owner of a property is the “formal” owner of the property, i.e. the one whose name is on the freehold title at the Land Registry. A beneficial owner is someone who has the right to enjoy or benefit from the property, and this can include the right to any income from the property or to reside in the property.
To complicate matters further, an interest in a house can be a freehold or a leasehold. A leasehold interest is different from a freehold in that it is necessarily time-restricted. A leasehold could be for a few days, or many hundreds of years, but eventually it will expire. When it does expire, the freehold owner will be able to step in and take possession of the property.
The Al Rayan HPP uses a combination of freehold and leasehold to deliver a diminishing musharakah/ijarah model (N.B. that musharakah means “partnership” and “ijarah” means rent). This Islamic finance model goes thus: the buyer of the property slowly buys more and more of the house over time, and his rental payment on the amount he does not own slowly decreases at the same proportion. Eventually he owns the entire house and is no longer paying any rent.
This is a little diagram of how the whole thing works:
So the situation is that the Buyer wants to buy the House, but he doesn’t have enough money to buy outright. But he does have enough for a 25% deposit. So he approaches Al Rayan bank – and this is what happens:
Al Rayan buys the freehold title in the house at the closing of the transaction, and it is its name that appears on the title. But the buyer gets an equitable interest in the freehold by way of the contract (the DCA – more on that below) and also gets a leasehold for 99 years alongside Al Rayan. This leasehold can only be sold or ended by the consent of Al Rayan, but it does put the buyer on a more secure and long-term footing than a shorter lease would.
Time passes, the Buyer continues paying rent and buying further equity in the House until eventually he owns 100%.
At this point the Bank transfers over the freehold interest in the property to the Buyer, the leasehold ends, and all charges in favour of the Bank are removed from the charges register.
HMRC is thankfully agreeable to only charging Stamp Duty Land Tax (“SDLT”) once, and so SDLT is only payable upon the initial purchase of the house, and not on the final transfer of the freehold by the bank.
Incidentally, this is one area where Al Rayan has an advantage over Heylo.
Review of the legal documentation
- The Freehold Title (hover for a definition)
- The Leasehold Title (hover for a definition).
- The Diminishing Co-Ownership Agreement (the “DCA”)
- Lease Agreement
- Service Agency Agreement
- Legal Charge Agreement
Glossary of Legal Agreements
This is held at the Land Registry in favour of Al Rayan, with a note on it indicating the existence of a leasehold interest on the property too.
This is jointly held by Al Rayan bank and the Buyer and notes the existence of a charge in favour of Al Rayan in the Charges Register associated with this leasehold title.
This is the crucial document that governs the duties and obligations of each party in the initial purchase of the property and the gradual buy-back of the property. It is separate from the lease agreement. It only covers the acquisition cost of the bank, i.e. the initial amount they pay to the seller alongside your deposit.
Here’s a few quibbles we had with this document:
- (5.2) Delay payment – There is a delay payment due to Al Rayan in case you are late in making payments, which Al Rayan subsequently give away, but only after deducting any loss they have suffered as a result. The underlying issue here is that receiving an additional payment above and beyond the due amount as a result of a time delay is considered riba in Islamic law. That’s why Al Rayan gives it away. We are happy Al Rayan to charge this amount, as they need to in order to deter late payments. Our issue is that this will be extremely hard to quantify and practically, the only easy way to quantify it is using interest rates as a proxy. So we’d be interested to hear how Al Rayan practically handles any delay payment money and whether it actually deducts any amount before giving it away to charity.
- (5.3) Tariff List – Firstly, as part of the Tariff List, the buyer has to pay the ground rent. This is typically the responsibility of the freehold title holder – Al Rayan in this case. We can understand why Al Rayan do it commercially – as ground rent can vary hugely and be relatively expensive – which would eat into their margin, but its one of those things that could be reviewed by Al Rayan and paid pro rata to their share. Secondly, there is a £25 administration fee for early repayments. Al Rayan have to allow early repayments as part of the teachings of Islamic law and the minimum early repayment sum is £4000. My concern is that over the course of a two-decade mortgage, an individual may well make over 20 early repayments. This would add up to £500, or 0.5% of a £500,000 financing, for example. 0.5% (or more) actually moves the needle a bit, and I would like to better understand whether £25 is a fair administration fee in this respect.
- 6.1(a) – if the house is destroyed through an insured risk, and the cost of rebuild will be such that the maximum finance-to-value that the bank initially agreed to, is exceeded, then the bank would rather sell the house than rebuild. I get why they would do that (don’t want to overexpose themselves to that individual more than they initially agreed based upon their due diligence) but it does seem rather like kicking a man when he’s down. Though – on the bright side – in the lease you don’t have to pay rent if your home is destroyed.
- (7.4) Reselling your house – bizarrely, you need Al Rayan’s permission to sell directly (unless to family), but you can sell without their permission through an estate agent (though ultimately they will need to be paid off in this case anyway).
- (9.2)(a) Exclusion of liability – the exclusion of Al Rayan liability includes any damage or defect in or to the property (whether such risk is insured or not). The issue here is that Islamic mortgages are supposed to be distinct from normal mortgages due to the different risk profiles (as the economics are largely symmetrical), so the more Al Rayan excludes its liability, the more like a conventional mortgage it becomes. In our view Al Rayan should not be excluding risk that is not insured, because that is then basically leaving them without any exposure to risk that not otherwise covered by insurance or excluded through a contract like the DCA. But more on this insurance point below. To be fair, what is going in their favour in this section is that they don’t force the buyer to pay them their remaining finance amount in the case of a house being destroyed – but they make sure the buyer has to take out an insurance policy sufficient to cover them anyway.
- Schedule 2 (7) – The buyer is required to insure the property entirely at his own expense. We don’t like this – more on this below.
This is the agreement through which the bank charges the equivalent of “interest” under a conventional mortgage structure. In other words, this is the agreement that governs the varying rate that the bank charges each month, depending on LIBOR.
Here’s a few quibbles or notes we had on this document:
- (6.1)(b) – you don’t have to pay rent if your home is destroyed. This is a good thing and a genuine difference between Al Rayan and a conventional lender who would continue charging interest.
- (12) – Al Rayan have excluded liability for any damage caused by them (or someone they’ve appointed) to the property. Circumstances in which the bank would have to get hands-on and do something substantive to the property are unlikely, but they can arise (for example, you tell them of a major structural flaw, and don’t sort it out within a defined period of time set by them and they then have to step in by sending their contractors over). In this case, I would want confirmation that the bank will appoint insured contractors and that I will be able to pursue the bank-appointed contractors for indemnification directly. Because otherwise, if the contractors are hired by the bank, and the bank isn’t interested in pursuing them due to any faults in their work, you as the home owner are not in a great position. But we do caveat all this with the emphatic this is very rare.
This is the agreement through which the bank requires you to maintain and insure the property. This is to make sure that their secured asset (which they can sell in case of default) is kept up to a standard such that it maintains its value. Additionally, it requires you to insure the property so that in the case of an unforeseen disaster, you and the bank are covered for that loss.
The main quibble we had with this document was:
- (2.2) – under the service agreement the buyer can get paid £1 on written demand and in all cases prior to the signing of the agreement. In other words, no one will ever demand this, and by the time they sign, it’ll be too late to demand it. But I might well demand it next time I take out an Al Rayan mortgage!
This is the agreement through which the buyer charges the property against the sums owed to the bank under both the DCA and the lease agreement.
Which scholars approve and disapprove of the Al Rayan HPP?
|Shaykh Haitham Al-Haddad||The Al Rayan HPP is not Islamic; it is too much like a debt instrument (i.e. the buyer is locked into purchasing the entire finance amount back from Al Rayan from day one).|
|Shaykh Akram Nadwi||Get a conventional mortgage if necessary, as Islamic finance is just like conventional finance dressed up in a religious garb.|
|Shaykh Suhaib Hasan||(at least in particular cases): get a conventional mortgage if necessary.|
|Shaykh Abu Eesa||The Al Rayan HPP is fine|
|Sheikh Dr Abdul Sattar Abu Ghuddah||The Al Rayan HPP is fine|
|Sheikh Nizam Muhammed Saleh Yaqoobi||The Al Rayan HPP is fine|
|Mufti Abdul Qadir Barkatulla||The Al Rayan HPP is fine|
|Sheikh Muhammad Taqi Usmani||The Al Rayan HPP is fine (though we note he is retired from the Al Rayan Shariah Supervisory Committee)|
Are there any issues?
An Islamic mortgage necessarily needs to be substantively different from a conventional mortgage. It can’t just be cosmetic changes. We are told that the HPP is substantively different from a conventional mortgage in a number of ways, primary among them the fact that the bank takes on a different set of risks to that taken on by a conventional provider. Let’s take a closer look at some of the key risks at play here.
|No.||Risk||IFG Commentary||Risk borne by|
|1||House damaged or made defective by an insured risk||This liability has been excluded pursuant to clause 9.2(a) of the DCA.||Insurer|
|2||House damaged or made defective by an uninsured risk||This liability has been excluded pursuant to clause 9.2(a) of the DCA||Buyer|
|3||Cessation of rent payments if a house gets destroyed/uninhabitable||This liability has not been excluded. Al Rayan is on the hook for this||Al Rayan|
|4||Insurance money not being enough to cover damages and/or exceed the maximum finance-to-value ratio||The bank has got the right to not rebuild the property but to simply sell the property further to clause 6.1 of the DCA||Buyer|
|5||The buyer doesn't insure the property||The bank has got an indemnity from the buyer in clause 7 of the Service Agreement which means the buyer pays||Buyer|
|6||Bank has to get work done to the property and damage is caused by its employees or agents to the property in the process||The bank has excluded this liability in clause 12 of the Lease Agreement||Buyer|
|7||The value of the property decreasing||Al Rayan simply won’t sell at below market value – or to the extent you would like to, then you need to pay off the remaining amounts due with Al Rayan receiving the acquisition payment they made initially||Buyer|
As you can see, Al Rayan has effectively hedged the risk in respect of all but one risk (Risk 3). We do not think that Al Rayan needs to be exposed to all of these risks, and we do think that insuring away the risks is an effective and acceptable strategy, but we do make the following recommendations to improve the risk exposure split between parties:
- Al Rayan should purchase the insurance for each of its properties. It should purchase a global insurance policy and, if it really wants to, pass on the cost through a slight increase in its global profit margin. But the fact that insurance is used to hedge so much of the bank’s risk, and is also bought by the buyer seems unfair and sends the wrong message to the customer.
- Al Rayan’s insurance will presumably be broad and cover a wide array of risks that would lead to damage or defect to the property. Accordingly it should bear Risk 2. Given the vanishingly small risk of a property being damaged by a risk that is not insured, this is not a big ask. The thinking behind this recommendation is that fundamentally any damage or defect to the property is the bank’s responsibility (or at least its share of the property). It is fine that the bank has sought to insure away this liability the best it can – but then the little bit it hypothetically hasn’t been able to insure away, it shouldn’t just transfer that back to the buyer. It’s not the buyer’s fault that the insurance coverage bought isn’t broad enough.
- Al Rayan should consider buying insurance to cover the potential shortfall in Risk 4.
Too much like a debt instrument
This is a sensible concern. We discuss this in the “Why do we think it is acceptable” section below. Ultimately we conclude that, given where we are right now in the Islamic finance industry’s development and the size of the Muslim population, Al Rayan’s model is acceptable. However, we are very much keen to see progression and Al Rayan and others evolving their models as the Muslim community grows and as the gains in infrastructure, tech and regulation allows banks a bit more breathing space.
What are the other options?
|Renting||✔️||Not a long-term solution for most people|
|Conventional Mortgage||❌||We are strongly of the view that this is not acceptable, though we understand some scholars allow this option|
|Gatehouse/Al-Ahli/UBL||✔️ (though we have not yet reviewed in detail)||These banks are challengers to Al Rayan and offer rates that are a bit more expensive – but that might change as the competition hots up!|
|Strideup||✔️ (though we have not yet reviewed in detail)||This is not yet live in its latest iteration but will be a HPP model too.|
|Heylo Housing||✔️ (though we have not yet reviewed in detail)||More expensive than Al Rayan but generally quite user-friendly as far as we can tell|
|Shared Ownership Schemes||Some of them – though some aren’t, and some need a bit of negotiation and restructuring to get there, depending on how lenient the scheme provider is to this sort of thing||These are great when sharia-compliant, but often tend to have haram components built in. We have heard of examples where schemes do let Muslims tweak the terms a bit so they can buy a house though. They are also restricted to set properties – often new-builds though (which are often slightly overpriced)|
|Primary Finance||✔️||This is a young start-up and will only be able to finance a handful of home purchases unless it gets hold of some deep liquidity (we hope they do!)|
Why do we think the Al Rayan HPP is acceptable?
At IFG we consider the HPP product Al Rayan is offering to be permissible and the best Islamic mortgage product available right now.
The HPP is not a perfect model and an arguably more Islamic model is something like what Primary Finance are trying to implement or Heylo Housing and other shared-equity schemes offer. This is because these schemes genuinely let you choose to not buy back your home and simply rent for periods.
However these schemes are either (a) just starting out and not well-funded or widespread enough to be a genuine solution for the vast majority of Muslims right now (Primary Finance); or (b) more expensive than Al Rayan and conventional providers (Heylo Housing, Primary Finance and other shared equity schemes) and so hard to seriously scale up.
A genuine solution for British Muslims needs to have scale and liquidity sufficient to meet the demand for Islamic mortgages and at the same time be affordable. But that means having to set up a proper regulated bank, raising necessary liquidity, and adhering to tight regulatory and liquidity rules. All this costs money, and means that such a bank needs to be able to package up its Islamic mortgage product in such a way as to effectively minimize risk for itself as much as possible and mimic the debt-like characteristics of mainstream mortgage providers.
Enter Al Rayan.
So why exactly is Al Rayan more expensive?
Well, the cost of financing is generally higher for Islamic banks (as they can’t borrow from the Bank of England (yet) or the mainstream money markets at low interest rates). They have to get their money from savings accounts and sukuk offerings, and this is more expensive because people with savings account or holding sukuks want to get paid. Additionally there’s the whole other issue that Muslims in the UK constitute about 5% of the population, and only a subset of them actually care enough to use Islamic mortgages. So Al Rayan’s target audience is (relatively speaking) tiny, and accordingly its prices won’t benefit from the economies of scale that larger lenders benefit from and reflect in their pricing.
A couple of points to wrap up the Islamic and legal analysis though.
Firstly, if a solution like Primary Finance gains traction and gets hold of the necessary liquidity sufficient to reduce its prices to be around Al Rayan’s and to meet the demand, we would prefer it to Al Rayan. But that’s genuinely a big “if”. People like Strideup have tried and failed and have had to pivot to a HPP model.
Secondly, Al Rayan (and other Islamic banks) have now reached an agreement with the Bank of England to be able to get access to sharia-compliant liquidity. This should in theory reduce the cost of capital to the bank, and therefore lead to a reduced rate being charged to customers. This should give a little more breathing room to the banks to be able to implement some of the risk allocation measures we recommend above, as well as passing the saving down to customers. We will be watching this market closely and fighting for the Muslim retailer to the best of our ability.
One of the key frustrations with Islamic mortgages is that they’re more expensive than their mainstream counterparts. For many, this is in fact the driver for them to go with a conventional mortgage. We’ve explained the economics behind why this is the case above.
In short, we think being driven by price is the wrong approach to take from an Islamic point of view. After all, if you accept that mainstream mortgages are haram, then you’re comparing apples and oranges because you shouldn’t be going for the haram product anyway. It’s a bit like saying that you’ll go for the haram meat at Tesco because the halal butcher is too expensive.
That being said, it is still useful to look at the conventional mortgage market and see where Al Rayan fit in from a pricing perspective.
How does Al Rayan compare against mainstream mortgage providers?
Let’s take an example of someone who is buying a house for £250,000 and has a 10% deposit (in other words, they’re going for a 90% LTV mortgage. LTV stands for “loan-to value” ratio, and is simply a figure to express what percentage the loan is in comparison to the property being bought).
They choose a mortgage term of 30 years. We’ll look at 4 major high-street banks and see how Al Rayan fares against them. Note: these figures are accurate as at July 2019.
|Bank||Monthly Payment||Initial Rate||Lender Fees|
Clearly, Al Rayan is much more expensive than a conventional lender. Around 30-40% more expensive. Or to put this in more concrete terms, you’d be paying over £300 extra per month in this example case, close to £4,000 a year. That’s a fancy holiday or, true to our ethos, you could invest that money and grow it.
There’s little doubt that mainstream providers are cheaper. We really want the main players to come back with sharia-compliant products. HSBC and Lloyds did used to offer them and the Muslim community missed a trick by not supporting these products.
As it stands though, there are no mainstream banks offering halal mortgages.
Al Rayan versus other Islamic Banks
Let’s carry on using the same example of a 30-year mortgage term on a £250,000 house but change it to a 20% deposit (i.e. borrowing £200,000). The reason for this is that Al Rayan are the only Islamic bank offering a 10% deposit mortgage so it would be difficult to compare without changing the example deposit amount.
|Bank||Monthly Payment||Rate||Application Fee||Early Repayment Charge|
|Al Rayan||£891.40||3.44% (discounted variable (discount until 30/6/21. Thereafter reverts to standard variable which is 3.99% + base rate - I.e. 4.74%)||£399||❌|
|Gatehouse||£863.84||3.19% (discounted fixed rate for 2 years. Thereafter reverts to standard variable rate which is currently 4.5%)||£399||❌|
You should do a comparison for your own particular circumstances (deposit, length of term etc). Don’t forget to factor in that when the rate reverts to the variable rate, you will be exposed to a changing rate (usually pegged in some way to the Bank of England base rate).
In this scenario and for this particular product, Gatehouse is coming out slightly cheaper. You can use our Islamic mortgage comparison tool to easily compare all your options in greater detail.
A side note: going for an 80% mortgage might seem like a no-brainer as it is cheaper, but sometimes a 90% mortgage might make more sense as you can then retain some cash to either (a) do up the house; or (b) invest it in something that will yield more returns than your house will over the same period. We’ll do a fuller article exploring this whole question soon.
The Al Rayan Buying Process
So how does this all work practically? The typical Al Rayan process will look like this (taken from this official Al Rayan guide)
- Stage 1 – Eligibility
- Stage 2 – Application (anticipate 3 weeks)
- Stage 3 – Offer and conveyancing (anticipate 9 weeks)
- Stage 4 – Release of funds (anticipate 3 days)
It is worth expanding on a few components of this timeline.
Conveyancing is just a fancy term for the legal bit of buying a house. You will instruct solicitors to deal with this for you, as will the bank for their part.
Solicitors are notorious for being slow and holding things up. This can be due to all sorts of reasons but from our own experience and having listened to respondents to our survey, you can get the conveyancing process done in as little as 3 months if everything lines up. The Al Rayan graphic says to account for 9 weeks for conveyancing but we think this is ambitious.
The key here is to stay on top of your solicitors and chase them regularly. Buying a house is a bit like having a side job – you will definitely have to take time out of your day to stay on top of things. If you are an employee, it’s helpful if you have the flexibility to take and make calls during the day without it disrupting your work.
Alternatively, you may at the outset want to ask the solicitor if you can nominate another person who is authorised speak on your behalf. That way you can nominate someone who would be free to just chase the solicitors at regular intervals.
Deal falling through
A sad reality is that some property deals will fall through (30% of them according to some stats). Circumstances changes, or you might be in a chain that collapses, or a whole host of other reasons can intervene. In these circumstances, it is useful to have home buyer protection insurance. This is an insurance that pays out any lost conveyancing, survey, and bank fees you might have already paid. Check out this link for more information on this. (Note, that we adopt the minority position that insurance is halal – see here)
Another key part of the process is the survey for the house. All banks require this and Al Rayan are no exception. There are two types of valuation: 1) Valuation report, 2) Homebuyer report.
The valuation report is simply a report to assess the valuation of your future home. This is the minimum that the bank requires and the fee for this depends on the value of your home. To give you a rough idea, on a £250,000 house, you can expect to pay just over £300.
A Homebuyer report incorporates a valuation, but also gives you much more detail. A surveyor will actually inspect the property and write a report outlining how different areas of the house rate. This flushes out any potential issues that you might not have known about or spotted when you looked around yourself (e.g. rising damp, dry rot timber etc). The cost of this again varies depending on the value of the property you are buying but on a £250,000 house, you can expect to pay just under £1,000.
Note that cost of these figures is taken from Al Rayan as you have to go with their valuer. It would be nice if Al Rayan had some flexibility on this as I know that these reports can be obtained much cheaper. For instance, Heylo Housing allow you instruct any RICS-certified surveyor. This approach makes sense in our view.
ownership & legal status
Al Rayan is the owner of the property. In the background, it enters into a leasing agreement with you as the co-owner, wherein agree to pay rent on the portion of the house that you do not own. So in the example above, you are paying rent on the 79% of the property that you do not own.
There is also a co-ownership agreement which says that Al Rayan agrees to sell you its share of the property for the amount of the finance that it provides.
The bank will incorporate into your monthly rental payments a portion which goes towards acquiring some equity in the property.
This all works from a legal perspective and the good thing here is that you are dealing with a relatively large, trusted organisation.
You can sell the property at any time and if the value has gone up, you will benefit because you only have to settle the finance amount with Al Rayan. Subject to admin fees, you do not get penalised for settling your finance early which is always welcome.
We’re going to use 3 main limbs for this in order of the size of the dataset – 1) Trustpilot, 2) IFG’s own survey, 3) Our own direct experience.
Al Rayan has an impressive 4/5 average rating based on 216 reviews. That’s a very good score indeed.
Unfortunately, Trustpilot do not allow you to filter the reviews by product so some of those 216 reviews will be for other things like Al Rayan’s banking offering. That’s a real shame, but what we’ve done is manually gone through the 216 reviews and picked out a couple of key positive and negative reviews on the mortgage process specifically.
Let’s look at the first negative Trustpilot review:
With the caveat that we don’t know the ins and outs of the case, this is a pretty damning review. We have anecdotally heard that Al Rayan’s checks can be quite cumbersome at times. In many ways, this is probably reflective of the fact that they are, relative to mainstream banks, small. They have to take fewer risks than bigger banks and that probably means greater checks. But it’s worth bearing this in mind when it comes to planning your timeline.
Let’s take a look at another negative review:
This complaint raises a few issues: 1) solicitor issues (remember what I said earlier about solicitor problems?) and 2) customer service.
Legal issues can arise for all sorts of reasons and, generally speaking, although the delays might be there, things do usually get sorted. The problems that arise differ from property to property and we don’t know enough in this case to really dig deep.
Slightly more concerning is the lack of customer service. From this review and others that we have gone through, it is clear that Al Rayan could do a much better job on the customer service side.
On the plus side, Al Rayan take time to reply to every Trustpilot review and that suggests they listen.
72% of all Trustpilot reviews were 5*, so we weren’t short of positive reviews to pick up on. Again, let’s look at two.
This looks like a very happy customer indeed. Someone who got his home purchase succesfully completed on time and without any issue. He is also a fan of the customer service. This is positive, and shows that Al Rayan do have the ability to deliver great customer service.
This is another glowing review demonstrating the bank’s ability to manage the process really efficiently.
IFG’s own survey findings
We reached out to Al Rayan customers from the IFG e-mail list to get their honest views on Al Rayan. Here at the highlights for some average scores for key questions we asked.
Q: If you were buying a house today, would you use AR again?
Average result: 6.3/10
Q: How likely are you to recommend AR to someone you know?
Average result: 6.2/10
Q: Thinking about customer service and support specifically, what rating would you give Al Rayan?
Average result: 3.1/10
Q: Now thinking overall, what rating would you give Al Rayan?
Average result: 2.9/10
Other interesting findings (and tips!) from our survey
We also asked some questions that weren’t just about numbers. Things like asking about what they wish they knew beforehand and what they’d get Al Rayan to change if they could.
Here’s a list of things people wish they knew beforehand:
- “Extra unexpected costs (e.g. chancel insurance etc)”
- “That they will have two separate deeds […] us as tenants (leasehold) and they are the owners”. IFG note: we’ve explained this in this article.
- “How long it would take”.
- “A formal document on the process of giving lump sums would have been useful.”
- “They don’t allow the facility to pay extra amounts on fixed rates.”
These are some really useful tips if you are about to enter the process.
Our reader recommendations to make Al Rayan better
We asked our survey respondents to explain one thing that they would advise Al Rayan to change. Here are some of their thoughts:
- Improve the customer service
- Make the process faster
- Try to be more sharia-compliant
- More explanation of the difference in their offering (e.g. what makes it halal)
- Clarity around the justification for their higher prices [IFG note: we have explained this in this article].
- More empathy and flexibility – the process is currently too rigid especially with regard to suitability requirements.
Al Rayan would do well to take notice of these customer recommendations. Some things are hard (e.g. speed of process) but other things like communicating how they come to their pricing is a relatively easy thing to do. By the same token though, it is easy for customers to say that a bank should be more flexible, but given the high regulation of the industry, Al Rayan understandably adopts a cautious approach. There’s a balance here, as nobody wants Al Rayan to face regulatory pressure or be known as the Islamic bank that went wrong.
our person experience
Both of us have had experience of Al Rayan personally. Mohsin when he was in the homebuying process (but ultimately didn’t go with Al Rayan) and Ibrahim also during his homebuying process (still ongoing). We both know people in our circles who have taken our Al Rayan mortgages.
Our direct experience was overall good. They have always been courteous and relatively swift in their communications and overall things have gone smoothly.
One area we think they could improve on is their flexibility when it comes to the requirements. They have some very conservative requirements (based on their risk-averse approach) but having some degree of flexibility would be nice. However, we appreciate that a regulated bank has to have policies in place.
There is no getting away from the fact that Al Rayan is expensive. That is sadly the price we pay for participating in what is a small and relatively new market. Al Rayan’s costs are higher than a mainstream bank and we pay the price of that. Many people fail to recognise the challenge that Islamic banks have on this front but question furiously why they charge so much on their home purchase products.
Ultimately, when all is said and done, this is a sharia-certified product that we are personally happy with too. Al Rayan have done a great job in this industry of bringing an Islamic home purchase product in the mainstream. They have built up a good brand and are a regulated bank that is well-respected.
Like any product with any company, there are negative reviews and a few legal and shari’ quibbles. But we also see lots of happy customers too based on Trustpilot and our own survey. We hope that, as more people come to Al Rayan through IFG, we can together influence the overall Islamic mortgage market for the better inshAllah.
For those who are still uncomfortable on the sharia side we recommend checking out an alternative to a mortgage such as the one provided by Wayhome.
If you are buying a house and want to go with Al Rayan, we hope this review has helped! Remember to check out the Islamic mortgage comparison page!