How to Choose Sharia Compliant Mortgage

Posted by islamicwealth on October 28th, 2014

It can be tricky for British Muslims to get a mortgage and negotiate to acquire a suitable Sharia compliant deal, as Sharia Law forbids Muslims to receive or pay interest. This made it difficult for Muslims to live in Britain until 2002, when Islamic mortgages finally became available. The good news is, there are more options nowadays. Islamic mortgages are available from building societies, banks, and high-end lenders. Here are tips to help you choose a Sharia compliant mortgage.

1. Islamic mortgages must follow other aspects of Sharia Law. For instance, the bank must use money that comes from activities that are allowed by Islamic standards. Choose a bank or financing company that is not involved with activities such as non-halal meat, gambling, and alcohol.

2. There are two types of Sharia compliant mortgages that are available in the UK: Ijara and Murabaha. Both would enable a lender to purchase property and sell it to you at a slightly high price or rent it to you until the mortgage has been fully paid.

Murabaha is deferred sale finance and it requires the buyer to finance a percentage (usually up to 20 percent) of a property upfront. This option is suitable for a homebuyer who has some capital, and it is ideal due to the fact that the property is already recognised as officially yours from day one. You and the lender must agree upon the monthly repayment amounts and repayment period. Repayments are fixed for the mortgage's term, with 15 years as the maximum term. You may repay the loan in full without penalties.

Ijara mortgages are popular among homebuyers who wish to lease the property and eventually own it. These types of mortgages do not require large deposits or initial payments, and they have slightly more flexible arrangements. In Ijara mortgage, the property is not immediately being registered to you on day one. Instead, you must rent the property from the lender while following the agreed monthly repayment agreements and rental fees. Ownership of the property will be transferred to you once the purchase price has been fully repaid or at the end of your agreed term with the lender.

3. Work with the right lender. Not all lenders and financial institutions have Sharia compliant mortgages. You must look further than niche banks and high street lenders to find Sharia compliant products and compare the prices of at least two service providers before making the decision. Just remember that all lenders will still check your credit history using an approved agency and they will still consider your profession, income, and the size of your deposit if applicable.

About the Author:
This article is written by Brian Adams, who is the director at Islamic Wealth Management. Islamic Wealth Management was established to provide Sharia-compliant financial planning service to Muslim individuals and business owners to maximise prosperity without comprising Islamic principles.