FAQs- Islamic Mortgage in UK
What is an Islamic mortgage?
An Islamic mortgage is compliant with Sharia Law. Such mortgages are different from traditional property loans as there is no interest to pay as per Sharia Law. This type of mortgage requires at least 20% of the deposit amount. These mortgages are also known as home purchase plans(HPP) which are further differentiated as Ijara(lease), Musharaka(partnership) and Murabaha(profit).
How do I choose a suitable Islamic mortgage?
You need to consider the following factors when choosing an Islamic mortgage:
1. What is the purpose of the mortgage? Is it for investment purposes or for personal use? If it’s for investment purposes, then you should go for the Ijara/Murabaha type of mortgage. In case of personal usage, then Musharaka/Ijara would be best suited.
2. How much money do you want to borrow? For example, if you want to borrow £100000, then you must get a minimum of £20,000 (20%) down payment.
3. Do you intend to live on the property for more than 5 years? If yes, then you should go with Musharaka/Iijara.
4. Are you planning to sell the property within the next 5 years? Then you should go with Ijara/Murabaah.
5. What is the purpose behind getting the mortgage? You may need to buy a house for yourself or for business purposes. In such cases, you should go for Ijaa/Murabahah.
6. How many children do you have? If you have one child, then you should go either for Musharaka/Ijaa or Musharaka/Ijahaa.
7. What is the purpose for which you want to invest the money? If you want to make some extra money, then you should go to Musharaka/Ijeera.
8. How long do you plan to stay in the property? If you plan to stay in it for less than five years, then you should go Ijara/Murabbaah.
9. Will you be able to afford the repayment? If not, then you should go musharaka/murabbaah.
10. Does your current lender offer Islamic mortgages? If so, then you should check whether they offer all types of Islamic mortgages or only certain ones.
How can I be sure that an Islamic mortgage is Sharia-compliant?
There are some Islamic mortgage lenders available who are regulated by the financial conduct authority(FCA). You can check the names of these lenders on the FCA website. You can also contact an Islamic mortgage broker to learn more about Islamic mortgages in uk.
Are Islamic mortgages more expensive?
Yes, Islamic mortgages could be more expensive than a traditional mortgages because of the Sharia-compliant. For Sharia mortgages, you may need to pay extra administration costs which increases the overall costs. Shariah-compliant bank will ask for at least 20% of the deposit amount. The main reason for this amount is that a Shariah-compliant bank does not charge interest on monthly payments. If you are interested in Islamic mortgage UK, you can contact an expert mortgage broker before starting your mortgage application.
What is the benefit of taking a mortgage from an Islamic bank?
The main benefit of using Islamic finance providers is that it replaces the interest component with “rent”. So, instead of paying interest, you are only doing rent payments. This means that you are saving money. Also, Islamic banks usually provide better rates than conventional banks. You can contact an Islamic mortgage broker who can guide you regarding monthly payments.
Is it possible to take out an Islamic mortgage without having any knowledge about Islam?
No, it is impossible to get an Islamic mortgage without understanding the principles of Islam. It is important to understand the concept of Tawheed, which is the belief in the unity of God. Also, it is imperative to understand the concept of Zakat, which is a form of charity given to Muslims. These two concepts are very essential to know when applying for an Islamic mortgage in UK.
Can I apply for an Islamic mortgage if I am already living in my home?
If you are currently residing in your own home, then you cannot apply for an Islamic mortgage. However, if you are planning to buy another house, then you can apply for a mortgage from an Islamic bank as well.
Is there a difference between an Islamic mortgage and a Halal mortgage?
Islamic mortgages are different from halal mortgages because the latter involves the sale of food items whereas the former is related to real estate transactions.
What is the difference between traditional mortgage financing and Islamic mortgage financing?
Traditional conventional mortgage financing is based on the principle of usury (riba) while Islamic mortgage provider financing is based on Islamic law (Sharia).
What is an Islamic home financing product?
An Islamic mortgage product is a type of loan that allows Muslim borrowers to borrow money for their housing needs. An Islamic mortgage lender provides financing products such as fixed-rate or variable rate loans.
Which is the oldest Islamic bank in Britain?
Rayan Bank is the oldest and the largest Islamic bank in Britain. They have been providing financial services since 1892.
Can I get an Islamic mortgage in UK for residential property?
Yes, you can get an Islamic mortgage on British properties. But, it depends on the location where you want to live. Most Islamic lenders do not allow people to use their services for commercial purposes. You can contact a financial adviser before starting your application.
Does HSBC offer Islamic mortgages?
HSBC offers Islamic mortgages as one finance product but they are available only for certain areas.
Are Islamic mortgages cheaper?
Yes, Islamic mortgages are generally cheaper than conventional mortgages
What are the different types of mortgages?
There are three basic types of mortgages: Fixed Rate Mortgage, Variable Rate Mortgage and Flexible Rate Mortgage.
Which bank is known as the Islamic Bank of Britain?
The Al Rayan Bank was formerly known as the Islamic Bank of Britain. United Bank Limited is also one primary provider of Islamic mortgages in the UK.
What are some of the mainstream banks for Islamic mortgages in UK?
HSBC is one of the biggest UK banks to set foot into Islamic Finance Services under its Amanah Finance Brand. However, these services are not continued by HSBC for years. Lloyds bank has also offered Islamic mortgages in the UK, but sadly, this scheme also got continued after 2018. For any latest updates, you can contact a financial adviser.
Can I get a halal mortgage in the UK?
Yes, you may be able to get a halal mortgage. The main thing is that you need to make sure that you are eligible for getting a halal mortgage. If you are not eligible, then you should avoid applying for a halal mortgage.
How much interest will I pay on a halal mortgage?
Interest rates vary depending upon the type of mortgage you choose. A fixed rate mortgage usually charges a lower rate of interest compared to a variable rate mortgage.
