The Islamic Bank of Britain launched the first Sharia compliant mortgage in 2008. There are many strengths to this Islamic ethical alternative to the traditional interest mortgage, however many people, including some Muslims, remain confused about the difference between them.
The Islamic mortgage is actually known as a "Home Purchase Plan". This is intentional and a reflection of the fact that no interest is charged on an Islamic mortgage. Charging interest is against Islamic law and consequently many Muslims have struggled to buy a house in the UK. The concept of Islamic law came under FSA regulations in 2006 however, and Islamic mortgages are becoming increasingly popular with Muslims and non-Muslims alike.
There are two main types of Islamic mortgage: the Murabaha Mortgage, which offers deferred sale finance, and the Ijara Mortgage, which is a lease to own arrangement. The Islamic Bank of Britain operates according to the principles of the Ijara mortgage – the most popular of the two schemes among British Muslims. Even some non-Muslims find this arrangement ethically preferable.
The Ijara mortgage doesn't require a large initial amount of capital to take out. The person taking it out approaches the Bank who then, upon approval, purchase the house from the vendor. The would-be owner then enters into a lease agreement with the Bank, paying an agreed rent and a contribution toward the purchase of the property each month. There are usually no charges for paying more than the agreed amount, and the outstanding balance can be paid off at any time.
The Islamic Bank of Britain offers the following plan to all customers regardless of faith:
* Rates start from 3.99% Fixed until June 2010 (Up to 70% LTV)
* A higher rate of 4.49% Variable is offered on LTV up to 80%
* Property value must be over £125,000
* Only £299 administration fee
* Refinance deals - Free valuation and customer solicitors costs paid up to £800*
* No penalty for lump sum payments and no early repayment charges
* Minimum finance of £70,000 - Maximum £750,000. Exceptions considered.
* Income from up to four people can be taken into account