You will probably have a number of questions about Islamic mortgages – we’ve listed the most common questions below with their answers to get you started.

If you are considering taking an Islamic (or any other) mortgage, it is worth taking the advice of a professional mortgage adviser before signing up to anything to make sure you are getting the best possible deal for your needs.

 

Question: Both these types of muslim mortgages seem to involve transferring ownership of the property twice. Does this mean I will have to pay Stamp Duty tax twice?

Answer: Not anymore. In 2003, Stamp Duty rules were changed to accommodate Islamic mortgages and now it is only necessary to pay Stamp Duty once, at the time of the original purchase.

 

Question: Can I borrow the same amount with an Islamic mortgage as with an interest mortgage?

Answer: Very similar amounts. Islamic lenders tend to be a little more conservative than some other lenders, and typically you will be able to borrow 2.5x – 3x your earnings plus 1x the annual income of your partner, if any.

 

Question: Do all banks provide Islamic mortgages?

Answer: No. But there are a selection of high street banks, building societies and wholly Islamic banks that do – here are some examples:

 

– HSBC – the first high street bank, also offers full Islamic banking

– Lloyds TSB – now offers Islamic mortgages in every branch

– Bristol & West – in partnership with ABC International Bank

– West Bromwich Building Society – one of the first in the UK to offer this service

– ABC International Bank – their scheme is also used by Lloyds TSB

– United National Bank

 

There are other Islamic lenders and it would be worth getting the advice of a specialist mortgage adviser to make sure you understand the differences between each bank’s offerings, as the rules can be a little harder to understand than with interest mortgages.

 

Question: Do Islamic mortgages cost more than interest mortgages?

Answer: Yes, a little. You will probably find your monthly payments are a little higher with an Islamic mortgage than they would be with an equivalent interest mortgage. There are several reasons for this:

 

The banks have to pay slightly higher rates for halal (permitted) funding

There are still only a relatively small number of providers for Islamic mortgages, so competition is not as intense as for interest mortgages.

The arrangements are slightly more complex and expose the bank to greater risk than with an interest mortgage, especially with an Ijara mortgage, where the bank owns the property for up to 25 years before transferring ownership to you.

Many Muslims throughout the UK are happy to pay a small premium in order to avoid having to compromise on their religious beliefs, and these mortgages are becoming increasingly popular.

Again, make sure you consult a professional mortgage adviser to check that you are getting the best possible deal for you.

 

Question: Are these Islamic mortgages certified or approved by religious authorities in some way?

Answer: Yes, they are. All banks offering Islamic financial products are required to have a Sharia Advisory Board, consisting of recognised experts on Islamic (Sharia) Law. Check with the bank concerned if you would like to know more about their Sharia board.

 

Question: Someone mentioned the Diminishing Musharaka principle to me. How does this fit in with Ijara and Murabaha mortgages?

Answer: Musharaka means “partnership”. Ijara (lease) schemes usually incorporate the Diminishing Musharaka principle.

 

What it means for you is that at the beginning of the mortgage, you are effectively in a partnership with your lender. You own a portion of the property, equivalent to your deposit, and they own the rest. You are allowed to live in the property and pay rent in return for this facility.

As you repay more of the property’s purchase price, you gradually own a greater portion of the property, and your rent decreases. As you own more, the partnership (musharaka) is said to diminish, eventually ending when you have repaid the entire purchase price of the property – hence “Diminishing Musharaka”.

 

Question: Are Islamic mortgages suitable for buying flats on leasehold too?

Answer: Usually. You need to check that the mortgage you are considering allows this, but most Islamic mortgages do.

 

Read On