What is an Islamic mortgage?
Islamic mortgages are mortgage products that are compliant with Sharia law, meaning they don’t involve paying interest – as with a normal mortgage.
There are three common types of Sharia mortgages:
This is similar to a lease product, where the bank buys the property and leases it back to you over a fixed period of time at a set monthly cost. Once that term is complete, the ownership of the property is transferred over to you.
Similar to a partnership, a Musharaka is a co-ownership agreement between you and the bank. You both own a share of the property and when you make a payment, part is the capital of the loan and part is deemed as ‘rent’ on the bank’s share. With each payment you are buying more of the bank’s share. As you buy more of the bank’s share, the rent you pay decreases and you’ll eventually own the full property as you make more payments.
This is where the bank buys the full property on your behalf and then sell it to you at a higher price. (The bank may buy the property for £200,000 but sell it to you for £275,000). You then pay this higher price in monthly installments over a set period of time. Once the payments are made, you have ownership of the house.
Are Islamic Mortgages More Expensive?
Sharia compliant mortgages are typically more expensive due to increased administration costs for the lender. In addition, it may be that you need to provide a larger deposit than with a ‘conventional’ mortgage. Normal mortgages can be secured with deposits of 5%-10%, but a Sharia-compliant mortgage may require a deposit of 20%. This tends to vary between lenders, which is why it’s important to speak to a mortgage broker to look to find the right deal for you.
How do I know my Sharia Mortgage is compliant?
Most lenders offering Sharia mortgages can demonstrate that they have received guidance on their mortgage product from an Islamic Law authority to ensure compliance. Us, as the lenders we work with, are regulated by the Financial Conduct Authority (FCA) which means any Sharia Mortgage comes with the same consumer protection as a conventional mortgage.
Getting A Sharia Mortgage
GPS Financial specialise in finding Sharia-compliant mortgages. Our advisers explain everything in straightforward, jargon-free terms so you’re completely comfortable with the product that you’re considering.
Book a free consultation with an Islamic mortgage specialist to find out how we can help you.