Mortgages

Islamic Mortgages

Islamic law states that a person is not allowed to to pay or receive interest. As this is exactly how a standard mortgage in the UK works, it is inevitable that Muslims have a higher degree of difficulty in taking out a home loan. Historically only the very rich have been able to afford a home by buying them outright.

Fortunately, banks and building societies have recognised this problem and are offering alternatives.

Two options currently correspond with Muslim law;

 

The Murabaha Mortgage

This mortgage is intended for would be home owners with a reasonable amount of capital behind them. A condition of this mortgage is that (circa.) 20% of the home’s value is expected to be paid on the day of purchase. From that day on the applicant must pay off any debt that is outstanding on the property at any point.

The property will then be registered in the name of the mortgage applicant - from the day of the first payment.

A fixed repayment period is agreed between the lender and the homebuyer. This mortgage works by arranging a sale price as normal with the vendor. The bank pays the purchase price then sells the house to the buyer at a higher price. This amount is determined by the original price of the property and the repayment period that has been agreed with the lender.

The Ijara Mortgage

With this mortgage you do not need a large amount of capital and it is slightly more flexible. It can also be taken out to replace an existing interest mortgage.

The monthly repayments are usually fixed yearly and there is usually the option of repaying the outstanding balance at any time without incurring any penalties.

This mortgage works by agreeing a price with the vendor after which the lender will purchase the property. The buyer than enters into a lease agreement with the lender. Each month an amount is paid to the lender as rent and a contribution towards the purchase of the property.

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