You want to know the ups and downs of taking an Islamic mortgage. You want it in one concise table. Look no further.<\/p>\n
<\/p>\n
With an Islamic mortgage, you\u2019re most likely going to purchase it under a Home Purchase Plan (HPP). <\/strong>The most popular of which is the Diminishing Musharaka (partnership).<\/strong><\/p>\n We\u2019ve got lots of info on what an Islamic mortgage is already. See this guild here<\/a> and I\u2019ve written about what makes an Islamic mortgage halal here<\/a>.<\/p>\n So here let\u2019s focus on the pros and cons. Check this handy table:<\/p>\n A halal<\/strong> way of purchasing property.<\/span><\/p>\n <\/p>\n The HPP method has been approved by scholars<\/strong> such as Shaykh Taqi Usmani, Shaykh Abu Eesa and Sheikh Dr Abdul Sattar Abu Ghuddah among many others.<\/span><\/p>\n<\/td>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n BUT\u2026 Not all scholars approve<\/strong> of HPP.<\/span><\/p>\n E.g. the opinion of Shaykh Akram Nadwi<\/strong> \u2013 Get a conventional mortgage if necessary, as Islamic finance is just like conventional finance dressed up in a religious garb.<\/em><\/span><\/p>\n And\u2026<\/span><\/p>\n Shaykh Haitham Al-Haddad<\/strong> \u2013 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).<\/em><\/span><\/p>\n<\/td>\n<\/tr>\n <\/p>\n <\/p>\n However it\u2019s not the \u201csame as interest\u201d. The bank is charging you to use the property, not to use their money<\/strong>.<\/span><\/p>\n There\u2019s difference between:<\/span><\/p>\n \u00b7 interest<\/strong> (the use of money);<\/span><\/p>\n \u00b7 rent<\/strong> (the use of something); and<\/span><\/p>\n \u00b7 profit<\/strong> (something you add as a mark-up and you\u2019re selling an item rather than money).<\/span><\/p>\n<\/td>\n <\/p>\n … BUT some will argue \u201cthe rent is basically the same as interest\u201d \u2026<\/span><\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n<\/td>\n<\/tr>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n \u2026 But<\/span><\/p>\n 1. You can sell the property at any time and if the value has gone up<\/strong>, 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. You do get penalised under a conventional mortgage.<\/span><\/p>\n 2. It does put the buyer on a more secure and long-term footing than a shorter lease would.<\/span><\/p>\n<\/td>\n <\/p>\n That\u2019s a restriction on your rights, as compared to under a conventional mortgage where you\u2019ll own the freehold.<\/span><\/p>\n Issues can arise If you need a lot of money fast, selling your house may not an option.<\/span><\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n<\/td>\n<\/tr>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n \u2026 But there\u2019s a chance the LIBOR rate is cheaper.<\/span><\/p>\n \u00b7 You could save \u2013 the Islamic banks usually charge less in rent right now than they would if they charged the local rental value.<\/span><\/p>\n Also, practically:<\/span><\/p>\n \u00b7 Imagine having to quarterly or biannually work out new local rent rates for each of the thousands of mortgage properties that the banks will have on their books. So, from a practical perspective, this would be difficult.<\/span><\/p>\n<\/td>\n <\/p>\n Banks use LIBOR-pegged values<\/strong> to set your rent, rather than using average levels in your local area as a guide (usually means you are paying more than you should) \u2026<\/span><\/p>\n <\/p>\n <\/p>\n <\/p>\n<\/td>\n<\/tr>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n \u2026 BUT in the case of a sale of the property with a profit, the bank foregoes the profit<\/strong>.<\/span><\/p>\n<\/td>\n <\/p>\n Let\u2019s say under your HPP, the bank owns 70% and you own 30% of the property.<\/span><\/p>\n <\/strong>4 issues here:<\/span><\/p>\n 1) The bank will still tell you, the buyer, to take out house insurance<\/strong> so that everyone is covered.<\/span><\/p>\n 2) You\u2019re told to maintain the house<\/strong> and make sure its general upkeep is done<\/span><\/p>\n 3) You have to pay full stamp duty<\/strong> upon the purchase of the house.<\/span><\/p>\n 4) You\u2019re left exposed to the open market<\/strong> whilst the bank isn\u2019t. The bank will lock-in a price. You have to pay back this, no matter how the value of the house changes (it\u2019s always going up) \u2026<\/span><\/p>\n <\/p>\n<\/td>\n<\/tr>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n \u2026 BUT this method is hala<\/strong>l. You always would pay more for the halal option for everything else e.g. food, essentials, so why is a mortgage different?<\/span><\/p>\n Compare it to the halal chicken example<\/u>: haram chicken from the supermarket might be cheaper, but you\u2019d still go to the halal butchers, no matter what the cost, right?<\/span><\/p>\n<\/td>\n <\/p>\n IFG has found that Islamic mortgages are almost always more expensive.<\/span><\/p>\n \u00b7 For Gatehouse bank, costs are 25-30% higher compared to a mainstream bank \u2013 see our analysis here.<\/span><\/p>\n \u00b7 We found the same in our analysis of Al Rayan.<\/span><\/p>\n Therefore, you\u2019ll pay higher 1) bank charges<\/strong> and 2) solicitors\u2019 fees<\/strong> for an Islamic mortgage\u2026<\/span><\/p>\n <\/p>\n<\/td>\n<\/tr>\n <\/p>\n 97% of our money supply is created by private interest-dealing banks who simply pop money into existence.<\/span><\/p>\n IFG has found that Islamic banks do the same.<\/span><\/p>\n<\/td>\n<\/tr>\n <\/p>\n With my experience in conveyancing, dealing with Islamic mortgages can be difficult.<\/span><\/p>\n The Islamic banks have their own approved solicitors to represent them in a transaction. If you don\u2019t use them, this usually means before anything has even happened:<\/span><\/p>\n 1) It\u2019s going to take longer<\/strong> because of the extra work.<\/span><\/p>\n 2) It\u2019s going to cost you more<\/strong> as solicitors will increase their fees.<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n","protected":false},"excerpt":{"rendered":" You want to know the ups and downs of taking an Islamic mortgage. You want it in one concise table. Look no further.<\/p>\n","protected":false},"author":61,"featured_media":6967,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","wds_primary_category":0},"categories":[6,7],"tags":[33],"acf":[],"_links":{"self":[{"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/posts\/6966"}],"collection":[{"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/comments?post=6966"}],"version-history":[{"count":0,"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/posts\/6966\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/media\/6967"}],"wp:attachment":[{"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/media?parent=6966"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/categories?post=6966"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.islamicfinanceguru.com\/wp-json\/wp\/v2\/tags?post=6966"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
\n \n Islamic Mortgage<\/strong><\/h2>\n<\/td>\n<\/tr>\n
\n \n Pros<\/strong><\/h3>\n<\/td>\n
\n Cons<\/strong><\/h3>\n<\/td>\n<\/tr>\n
\n \n \n \n Avoids paying interest<\/strong>\u2026.<\/span><\/p>\n \n \n <\/span><\/p>\n You are sold back a lease which you pay until you own the property. The leasehold that you own can only be sold or ended by the consent of Al Rayan.<\/strong><\/span><\/p>\n \n <\/span><\/p>\n Under your lease with the bank, the contract will not use local rent values.<\/span><\/p>\n \n <\/span><\/p>\n They don\u2019t share in ownership risk adequately:<\/strong><\/span><\/p>\n \n <\/span><\/p>\n They are more expensive than a conventional mortgage \u2013 article [here]<\/strong><\/span><\/p>\n \n <\/td>\n Fractional reserve banking and money creation:<\/strong><\/span><\/p>\n \n <\/td>\n Practically they are much more difficult to deal with<\/strong><\/span><\/p>\n