Personal Finance

Gatehouse Bank Review – Islamic Mortgage: a deep dive

For the first time ever, we have exhaustively gone through Gatehouse Bank’s Islamic Mortgage, also known as the Home Purchase Plan (the “HPP”).

We are confident that nothing as detailed as this has been done for the Gatehouse HPP. In this article we examine the legal, Islamic, commercial and practical aspects of the HPP informed by:

  1. A close read of Gatehouse’s legal documentation;
  2. A wide-ranging survey of Gatehouse customers; and
  3. Hundreds of discussions we’ve had with professionals, Gatehouse 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 Gatehouse mortgage both Islamically and commercially.

Summary

This is a long article so we want to make your life easy with a quick summary of our findings.

  • Our conclusion is that Gatehouse’s HPP product is a great option for Muslims looking to take out an Islamic mortgage. They are, at the time of writing, the cheapest option available in the home purchase space for a number of the HPP products – including the most popular ones such as the 80% deposit product.
  • We have to be honest – they are a bit painful when you go through the initial background checks stage with them. This can take a couple of weeks and some back and forth. However, if you persevere it’s worth it, and if you run into any issues, they have a great team of relationship managers who will be your first points of contact anyway. They can often chase down things on your behalf and ease the friction.
  • We like that they don’t make you pay for their lawyers or restrict who you go with.

From our personal perspectives, Ibrahim currently has a Gatehouse mortgage and has previously had an Al Rayan mortgage, while Mohsin opted for Heylo Housing (but plans to shift to Gatehouse or Al Rayan in the coming years). So we have first-hand experience of the Gatehouse product.

Islamic & Legal Analysis

What structure do Gatehouse use?

The Gatehouse Islamic mortgage is structured as a HPP. It is pretty much identical in legal form to the Al Rayan HPP.

The HPP 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.

Warning: some legal jargon coming up which we’ll explain just below.

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.

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 Gatehouse 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 Gatehouse bank – and this is what happens:

Gatehouse 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 Diminishing Musharaka Agreement – more on that below) and also gets a leasehold alongside Gatehouse. This leasehold can only be sold or ended by the consent of Gatehouse, 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 Gatehouse has an advantage over Heylo. The legislation has not really caught up with providers like Heylo.

Review of the legal documentation

Gatehouse have done the paperwork in a different way to Al Rayan.

There is basically one crucial document called the “HPP Diminishing Musharakah Residential Financing Product Terms & Conditions” (the “T&Cs”) which contains all the legal action. All the other documents in the list below point to this document and are themselves quite short documents.

I think I ultimately like this approach better as it makes it easier to sign a bunch of short documents rather than have to sign 5 quite bulky documents – but not a big deal. The important thing though is that you must remember to properly understand the T&Cs (by reading this article and by reading the T&Cs yourself too). You don’t have to sign the T&Cs so it is easy to forget that this is the document that you’re actually signing up to.

Having said all that, the actual legal documentation is very similar between the two banks, to the point that, amusingly, the clause references are very similar too.

1. Bank signed offer

This is the initial offer letter the bank sends confirming that it is in principle signed off on you, that you can go ahead and make an offer on a property and start the conveyancing process with a solicitor. The Bank Signed Offer also contains an important checklist at the back of things that will need to be completed/sorted-out before the bank can pay the money.

2. HPP Diminishing Musharakah Agreement

A short agreement 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.

Issues/points to note:

  • (Costs & Expenses, 5.3): though Gatehouse advertises that it does not charge you for their legal fees – and indeed that has been our personal experience as well – the contract does allow for them to charge you for all legal and other expenses they reasonably incur whilst preparing your mortgage documentation. Ultimately not a big issue – as long as Gatehouse continue to stick to what they are advertising!
  • (9.2) Just like Al Rayan, Gatehouse have passed on all their risk back to the buyer. All the risks mentioned in this clause have been insured against in any case (e.g. any damage or defect in or to the property) but Gatehouse also want to make sure that even if not insured against, they are not on the hook for this stuff. They also don’t pay for the insurance (the same as Al Rayan). We think that this hypothetically extremely remote risk should be either insured away itself by Gatehouse or the bank should take that risk. They should really have at least some ownership risk exposure to each property they mortgage.
  • Schedule 3 (3(ii)): note that if you do eventually decide to rent out you home, you will need to inform Gatehouse of this or you will be breaching the agreement.

3. HPP Service Agency Agreement

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.

Issues/points to note:

  • (3.1): Once you have your home, just make sure you keep well on top of your insurance every year. Having insurance is key in mainstream and Islamic mortgages as it is a way for banks to shift the majority of the catastrophic risk to an insurer. But if you don’t have valid insurance then the banks will start gunning for you.

4. HPP Lease

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.

Issues/points to note:

  • The overall setup is such that you are basically taking on all of the bank’s burden of being a landlord to you. So in the case of you being in a flat, a landlord typically has to deal with the building management on various points, but these are assigned to you to sort out. That’s not really a bad thing – you don’t really want Gatehouse to actually be your landlord. The arrangement you want with an Islamic mortgage is that you now own that building.
  • (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 Gatehouse and a conventional lender who would continue charging interest.
  • (8): The bank can get rid of you after 90 days of you not having paid rent. Understandable really.
  • (10): The bank has excluded liability for pretty much everything in the case of an accident, loss or damage. While we understand why the bank has done this, we think it would be more in keeping with the spirit of Islam to get rid of these blanket carveouts and instead deal with the matter by way of a robust insurance policy instead – and one that the bank actually contributes towards.

5. HPP Legal Charge

This is the agreement through which the buyer charges the property against the sums owed to the bank under both the Diminishing Musharakah Agreement and the Lease Agreement.

6. HPP Diminishing Musharakah Residential Financing Product Terms & Conditions

These are the T&Cs. You don’t have to sign this document itself, but it is the document that contains the bulk of the legal action.

Issues/points to note:

  • A general point to note is that each of these agreements has hard-baked into them that you have accepted the sharia-compliance of these agreements and will not question them afterwards. Makes sense really, as Gatehouse don’t really want to get into a dispute about the sharia-compliance of the agreement afterwards (given there is a real diversity of views when it comes to Islamic law!).

7. HPP Terms & Conditions Acknowledgement

This is a short acknowledgement that you have read the T&Cs.

Which scholars approve or disapprove the Gatehouse HPP?

ScholarOpinion
Shaykh Haitham Al-HaddadThe 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 Gatehouse from day one).
Shaykh Akram NadwiGet 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 EesaThe HPP is fine
Sheikh Dr Abdul Sattar Abu GhuddahThe HPP is fine
Sheikh Nizam Muhammed Saleh YaqoobiThe HPP is fine
Sheikh Esam Khalaf Al EneziThe HPP is fine
Sheikh Abdul Aziz Al-QassarThe HPP is fine

Are there any issues?

Insurance

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.

NoRiskIFG CommentaryRisk borne by
1House damaged or made defective by an insured riskThis liability has been excluded pursuant to clause 7.1 of the Lease AgreementInsurer
2House damaged or made defective by an uninsured riskThis liability has been excluded pursuant to clause 9.2 of the Diminishing Musharakah AgreementBuyer
3Cessation of rent payments if a house gets destroyed/uninhabitableThis liability has not been excluded. Gatehouse is on the hook for thisGatehouse
4Insurance money not being enough to cover damages and/or exceed the maximum finance-to-value ratioThe bank has got the right to not rebuild the property but to simply sell the property further to clause 6.1 of the Diminishing Musharakah AgreementBuyer
5The buyer doesn't insure the propertyThe bank has got an indemnity from the buyer in clause 7 of the Service Agreement which means the buyer paysBuyer
6Bank has to get work done to the property and damage is caused by its employees or agents to the property in the processThe bank has excluded this liability in clause 10 of the Lease AgreementBuyer
7The value of the property decreasingGatehouse 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 Gatehoues receiving the acquisition payment they made initiallyBuyer

As you can see, Gatehouse has effectively hedged the risk in respect of all but one risk (Risk 3). We do not think that Gatehouse 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:

Gatehouse 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.

Gatehouse’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.

Gatehouse should consider buying insurance to cover the potential shortfall in Risk 4.

No sharing in upside or downside risk

We don’t think this is ultimately a really substantive issue. See our reasoning in this article and this article.

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, Gatehouse’s model is acceptable. However, we are very much keen to see progression and Gatehouse 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?

OptionSharia-CompliantIFG Commentary
Renting✔️Not a long-term solution for most people
Conventional MortgageWe are strongly of the view that this is not acceptable, though we understand some scholars allow this option
Al Rayan Bank✔️Al Rayan is the leading Islamic Bank in the UK and Gatehouse is the challenger. Gatehouse is definitely cheaper on price, but Al Rayan has some things going for it too. It has a few more products, has a better capital base, and is able to be a bit more flexible from what we have seen.
Al-Ahli/UBL ✔️ (though we have not yet reviewed in detail)These banks are challengers to Gatehouse 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 Gatehouse 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 Gatehouse HPP is acceptable?

At IFG we consider the HPP product Gatehouse is offering to be permissible and the cheapest Islamic mortgage product available right now.

The HPP is not a perfect model and an arguably more Islamic model is something like what 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; or (b) more expensive than Gatehouse 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 Gatehouse.

So why exactly is Gatehouse 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.

So a mainstream bank borrows £100,000 off the Bank of England at the base rate of 0.75% and then lends that £100,000 out to Bob at 2% and takes the difference. Gatehouse on the other hand can’t borrow from the Bank of England as it can’t deal in interest. They get £100,000 from savings accounts instead (which they offer via a sharia-compliant structure) for which they have to pay 2% back to the person whose savings it is. They then need to “lend” out at more than 2% to make a profit. So they lend out at 3% and make a profit.

In a nutshell, the £100,000 costs more to Gatehouse so they need to charge more. Hopefully this will change soon as the Bank of England is working on a sharia-compliant liquidity facility which will allow Islamic banks to borrow directly from them in a sharia-compliant way.

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 Gatehouse’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 Gatehouse’s and to meet the demand, we would prefer it to Gatehouse. But that’s genuinely a big “if”. People like Strideup have tried and failed and have had to pivot to a HPP model.

Secondly, as mentioned, 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 consumer to the best of our ability.

Commercial Analysis

How does Gatehouse compare against mainstream mortgage providers?

Let’s take an example of someone who is buying a house for £250,000 and has a 25% deposit (in other words, they’re going for a 75% 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 Gatehouse fares against them. Note: these figures are accurate as at June 2020, during the coronavirus pandemic when many lenders are reluctant to lend.

BankMonthly PaymentInitial RateLender Fees
Gatehouse£809.853.19%£499
HSBC£6241.24%£999
Barclays£6251.25%£1,034
Santander£6421.44%£649

Unsurprisingly, the mainstream banks come out cheaper by around 25-30%. We’ve explained the reasons for that above.

This section is mainly just to give a real-world comparison. If you accept that mainstream mortgages are haram, then it’s unlikely that you would ever go for one anyway. Of course, what we all want ultimately is for sharia-compliant products to be available at similar prices to mainstream products.

How does Gatehouse compare against other Islamic banks?

For a live comparison, you should head over to our Islamic Mortgage Comparison tool. There you’ll be able to compare all the Islamic banks for your particular circumstances.

For reference though, Al Rayan is the closest competitor to Gatehouse and using the same scenario above (£250k purchase with 25% deposit), their monthly payment comes out at £830.49.

BankMonthly PaymentRate
Gatehouse£809.853.19%
Al Rayan£830.493.39%

So for this scenario, Gatehouse comes out a little cheaper. The best thing to do is use our comparison tool for your circumstances.

Gatehouse versus Shared Ownership Models

If you’re not familiar with shared ownership then it’s basically a model whereby you own a certain amount (e.g. 10%), the same as with an Islamic mortgage. You also pay rent on the share that you don’t own (similar to an Islamic mortgage). But your rent does not pay down equity in the house. Nor do you have to buy any more equity in your house (though there is the option to do so which will, in turn, reduce your rental payments).

LenderMonthly PaymentRateFee
Gatehouse£809.853.19%£499
Heylo Housing£7644.89%£1200 (freehold) / £1800 (leasehold)

Heylo comes out cheaper but bear in mind that you’re not buying any equity in your house with that. It also has a higher product fee. In addition, Heylo’s price goes up annually by 0.75% + RPI.

With that in mind, Gatehouse comes out on top overall.

LenderMonthly PaymentRateFee
Gatehouse£809.853.19%£499
Heylo Housing£7644.89%£1200 (freehold) / £1800 (leasehold)

Let’s look at how Gatehouse stacks up against a well-known shared ownership provider, Heylo Housing. We’ll use the 25% deposit example above. Note: Heylo confirmed to us that as of June 2020 they are no longer lending. They expect this to pick back up post-pandemic but there is no definite date just yet. It is worth checking in with them regularly.

Gatehouse versus Renting

Renting can make sense in some circumstances. For instance, if you need flexibility to move quickly because of your job it doesn’t make sense to buy.

Alternatively, you might want to take your deposit money and invest it. You might end up with renting being the economically better choice. Check out our buy vs rent calculator to understand what sort of return you’d need to make on your investment to make it financially viable to rent rather than buy.

The Gatehouse Buying Process

The Gatehouse process works in a very similar way to most mortgages.

Stage 1: Eligibility & Initial Application
Stage 2: Offer from Gatehouse (3-5 weeks from application)
Stage 3: Conveyancing (3-5 weeks)
Stage 4: Release of funds (roughly 3 days)

This is what Gatehouse themselves say about the process:

“It’s usually 3-5 weeks from the initial application to an offer of finance, as long as you send us the documents we need promptly, and we get an acceptable property valuation.

It’s usually another 3-5 weeks from the offer of finance to legal completion as long as all the right documents are submitted to the solicitors and satisfactory legal reports are received.”

As with any buying process, we always recommend that you stay on top of the various people involved in the transaction. That includes Gatehouse, as well as the seller, the estate agent and any other key stakeholders.

The other really key thing with this sort of process is to be super-organised and on top of all your paperwork. It will help a huge amount if you’ve got all your documents in one place and you keep a record of what you sent, when you sent it and you chase the relevant people to confirm they have received it.

It’s helpful that Gatehouse give you a dedicated relationship manager so you can get through to the same person each time.

Survey

The Gatehouse survey is carried out mainly for the bank’s benefit to check that the valuation is broadly right. It is not a substitute for a full home buyer’s report, which will give you much more detailed information and they will look out for some red flags too in a much more thorough way.

The Gatehouse survey is not as thorough as the Al Rayan one sadly which gave a lot of structural and wider improvement points. The Gatehouse survey is a valuation survey conducted by estate agents.

Solicitors

Gatehouse don’t charge you for their solicitor and they don’t force you to necessarily use a solicitor from their panel. This is more flexible than Al Rayan and cheaper too – Al Rayan make you pay £500 for their solicitor (but contribute £400 is you use a solicitor from their panel).

Customer Perception

IFG Survey Findings

We conducted our own survey from IslamicFinanceGuru audience members about their experiences with Gatehouse.

The overall results were positive. Here are some key metrics:

Q: If you were buying a house today, would you use Gatehouse again?

Average answer: 7.5/10
Median answer: 8.5/10

Q: How likely are you to recommend Gatehouse to someone you know?

Average answer: 7.6/10
Median answer: 8.5/10

Q: Thinking about customer service and support specifically, what rating would you give Gatehouse?

Average answer: 3.9/5
Median answer: 4/5

Q: Now thinking overall, what rating would you give Gatehouse?

Average answer: 4/5
Median answer: 4/5

The numbers show an overall positive impression of Gatehouse.

But of course it’s not always about numbers! Here are some less positive snippets from our audience:

  • “It’s a long process”
  • “Gatehouse needs to speed up their approval process”
  • “I wish they give a clear list of documents rather than coming back a few times”
  • “Cannot make acquisition payments during fixed rate period”
  • “Getting through to [my relationship manager] was nigh on impossible”

And some positive snippets:

  • “Easier than expected”
  • “Sharia compliant AND professional. Both together is rare!”
  • “Cheapest rate, fairly hassle-free and quick turnaround”
  • “The whole process went very smoothly”.

Trustpilot Findings

Gatehouse has a 3* rating on Trustpilot from 7 reviews. That is not a massive sample size and a few of the reviews are in relation to their savings product, so not directly relevant for this review. We share below the reviews that are in relation to their HPP product.

A positive review:

Some negative reviews:

Our Personal Experience

Ibrahim took out a Gatehouse HPP late last year. He went for an 80% FTV product. The entire process took around 3 months from start to finish, though the large part of this delay was due to him being in a chain rather than anything to do with the bank.

The one thing he found painful in the process was the roughly two-week phase where you have to send in all the documents and the Gatehouse onboarding team do checks and sign off that they have everything they need.

A top tip for this is to send everything in one big batch rather than piecemeal. This is because it minimises the number of emails you send and the potential for an email to be misplaced. This is what happened with Ibrahim and he had to end up resending old emails again as the Gatehouse team couldn’t find it.

Another top tip is talk to your relationship manager (the person that does the initial application with you) if you run in to any difficulties. They can often have a quiet word and push things along.

Bottom line, apart from the onboarding paperwork hiccups, the entire process was pretty smooth and well-executed. I’d give them a 4* rating.

Conclusion

We have a very positive overall view of Gatehouse.

From the sharia side, of course there are improvements that can be made. And we’ll be urging them to do that too. But Gatehouse’s overall offering is approved as sharia-compliant by leading scholars and we’re very comfortable with it too. Our detailed findings are set out in this article.

From the commercial side, we all know that sharia-compliant lending is unfortunately priced higher than mainstream banks. Contrary to popular opinion, that’s not because Islamic banks want to fleece. It’s a systemic issue caused by the fact that it costs Islamic banks more to get liquidity. We’ve outlined the reasons for that in this article too.

But Gatehouse are doing the best with what they can and they have created a really competitive offering that has scored well from a customer service angle from our own deep dive and personal experience.

If you’re thinking about buying a house or refinancing, check out our handy comparison tool to check the best rates.

PS: If you’ve benefited at all from this review we would be super grateful for a really quick review here. It means a lot to us.

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  • Essam Mahgoub
    June 20, 2020 11:46 am

    Salam Alikum,
    This is an excellent analysis of the available Islamic Mortgage in the market. The problem is that young married couples are still finding difficult to use Islamic HPP for their flat/house because the monthly payment is higher than mainstream mortgage providers. You need to put yourself in their position as they have to pay the ground rent, service charge, council tax and the annual letting management fee in addition to the mortgage and their annual income is not that great. That makes many young Muslim families I know still prefer mainstream mortgage than Halal Mortgage. I do not know how this dilemma can be solved.

    Reply
    • Well, these are the options currently available. Whilst not ideal, the major concern for all should be to stay away from riba, where Allah wages a war against such individuals. After all, owning a house is not a necessity of life, one can always rent. I appreciate that it’s not what many want to hear, but we need to be realistic and put things into perspective

      Reply
    • It’s not the best situation for muslims but as the article clearly mentions islamic mortgages will cost more than mainstream mortgages because of the fact that liquidity is sourced differently. Whilst mainstream banks can take loans from the bank of England at low interest rates, sharia compliant banks cannot. Until sharia compliant banks can take a sharia compliant loan from the bank of England at a competitive rate islamic mortgages will always cost more. Whether you’re a young muslim couple or an old muslim couple it doesn’t matter, islamic mortgages will cost more and that is unfortunate for practicing muslims. I’d like to know though what would be the situation of those who have taken out a mortgage with an islamic bank with the current setup and if islamic banks had access to sharia compliant loans at competitive rates, hopefully in the near future, would the buyer continue paying at the rate of original deal they had signed up for or would they be transitioned onto a new lower rate due to the new loan available to the bank?

      Reply
  • Very well explained in very plain English…I love the the way these guys describe anything..easy to understand for public..Though i am still not satisfied with these mortgages unless all of the ulma get agree that is the right product.
    Instead I would prefer to buy via cash savings somewhere in Manchester (Bolton.Rochadle etc) where you can buy a three bedroom house for between 60k-80k

    Reply
  • Asalaamu akaykum guys,

    Brilliant review. One question though, although not regarding Gatehouse. You listed a fee for freehold and leasehold for Heylo Housing but as far as I know, Heylo do not offer finance on leasehold anymore. Have you heard different?

    Reply
  • Salaam. How about Ahli United Bank’s Islamic mortgage product for UK customers?

    Reply
    • Ibrahim Khan
      June 23, 2020 2:30 pm

      Its fairly limited in practice in its availability to we haven’t done a deep dive of it.

      Reply
  • AssalamuAleikum,

    Thanks for this well-researched and well-written article.
    Coming from a technical yet non-finance background, I thought many of the puzzling bits around the topic were explained well generally and the overall tone was very much neutral (not salesy), which was much appreciated.

    My question, and main area of doubt, relating islamic morgages in general, and the example of Gatehouse specifically, is about agreement 4. Where it says:
    “This is the agreement through which the bank charges the equivalent of “interest” under a conventional mortgage structure.”

    Then later in the article when an example of a cost-steucture was given, the “rate” charged is involved again.

    Bar error or misunderstanding from my part, I believe islamically, halal debt/loans start from the concept of shared-risk and non-increasing charges over time, which in many cases these so-called islamic products fail to comply with. Its definitely more of a systemic issue than an intentional issue as explained in the later part of the article. I just wished more in depth explanation of the “rate” and “interest” parts of the islamic mortgage was provided for the average non-finance-fluent UK practicing muslim, as myself and many others, who are literally, for lack of a better term, turned off by the mere use of these terms in any islamic products be it house, car, phone, etc.

    Again, very much appreciate your efforts in IFG and remain a big supporter of the work being done. Bravo!

    Ali

    Reply
  • Abdur Rahim
    June 23, 2020 9:06 pm

    As salamu alaikum,
    Great job guys, very well researched article! Can you please clarify what the lender fee is and how often it is paid?

    Reply
  • Salam,
    Great analysis – a slightly tangential question to this. If these products are deemed permissible (according to some scholars) to take out, would the converse hold true as well, i.e. would working as a relationship manager or credit officer be permissible as well to sell these products?

    Reply
  • Ali Yussuf Abdi
    June 29, 2020 2:04 pm

    Thank You IFG, for well-articulated research. Mashallah, you are adding value to our vulnerable Muslim community. I urge those who are rushing for haram mortgages to hold their horses, this is waging wars with Allah and His Messanger (PBUH). On the whole its a real eye-opener for us and once again thank you for your time and effort.

    Reply
  • Do Gatehouse or Al-Rayan allow tax credits to be counted towards a persons total income for a HPP application?

    Reply

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