ISLAMIC MORTGAGES

Sharia-compliant mortgages are really ‘mortgage alternatives’ and function as no-interest home purchase plans.

Though there are several variations across the market, all work in the same basic way: the bank buys the property on your behalf and becomes the legal owner.
Your monthly payments function more like rent, with a portion going towards buying out the property owner’s stake.
At the end of the term you should either have bought the property back, or have an outstanding sum left to settle before you become the legal owner.

Types of sharia mortgage

Ijara

In an Ijara home purchase plan, you make monthly payments that are part rent and part capital to finance your final purchase. This means your ownership share of the property remains consistent throughout the length of the term.

Diminishing Musharaka

Diminishing Musharaka is a joint purchase agreement between you and your Islamic bank. You pay off the provider’s share in monthly instalments, so your ownership share grows as theirs shrinks.

Murabaha

Under the Murabaha no-interest purchase plan, your sharia-compliant provider buys the property and sells it to you at a marked-up price, which you pay in monthly instalments.

These kind of halal mortgage agreements are rarely seen for UK home purchases, but are sometimes used in commercial property development. As these Islamic mortgage alternatives are all slightly different, you should take

care to consider the potential risks and advantages that may come with each, so as to find the right option for you.