It is against Islamic law to pay or receive interest and
this has been a huge problem for Muslims living in Britain.
Only the very rich could afford to buy a property outright and
now many lenders are starting to recognise this problem and
are offering an alternative.
There are two main options available to you that correspond
to Muslim law;
- The Murabaha (Deferred sale finance) Mortgage
- The Ijara (lease to own) Mortgage
The Murabaha Mortgage is only really an option for
individuals/families who have a fair amount of capital behind
them as it is a condition of the mortgage package that you are
expected to pay around 20% of your homes value, on the day of
purchase. From that day, however, the house will be registered
as your own and you may pay off any debt outstanding at any
point. This package offers a fixed repayment period that is
agreed between you and the lender and a repayment amount that
is fixed for the term of your mortgage.
How does the Murabaha Mortgage
When you find a property that you wish to
buy, you arrange a sale price with the vendor, as normal.
However the bank pays the purchase price, then immediately
sells the house to you at a higher price (the higher price is
determined by the original price of the property and the
repayment period that you will have agreed with the lender)
minus the percentage you pay as a deposit.
The Ijara Mortgage is a more popular choice as you do not
need a large amount of capital behind you to set it up. It is
also more flexible. It can also be taken out to replace an
existing interest mortgage. The amount you pay each month is
usually fixed, yearly. The outstanding balance can be paid off
at any time (usually) without incurring penalties.
How does the Ijara Mortgage work?
before, you find your property and agree a purchase price with
the vendor, your lender will then purchase and gain ownership
of the property. You will enter into a lease agreement with
the lender. Each month you will be expected to pay rent to
your lender and a contribution towards the purchase of the