Home > News > Muslim homebuyers compelled to pay a “Sharia Price” for loans

Muslim homebuyers compelled to pay a “Sharia Price” for loans

Muslims who want to secure a home loan in line with their religious beliefs face the prospect of paying Sharia interest rates than if they took out a conventional mortgage.

Those who want a Sharia-compliant loan are looking at up to 9% rates – far above the 6% interest standard mortgages are hovering around.

This can result in thousands of pounds extra being added to the lifetime price of a home and has resulted in ethical dilemmas for many Muslims, says Josh Rankin of Tembo, a broker which deals in both Sharia and traditional options. “This pushes many customers to opt for ‘regular’ mortgages, despite a wish to get sharia,” he says.

Sharia home financing deals exist as a sale and lease agreement. To avoid paying interest, the bank buys the property with its customer as the freeholder – or primary leaseholder, if it is a long-lease property. Although sometimes described as “halal mortgages”, these are actually no-interest home purchase plans (HPPs).

Typically, the provider leases, or sub-leases, the property back to the homebuyer, who then pays rent on the part they do not own, plus increments towards buying the property.

Structures differ, but the cash deposit and subsequent payments are legally presented in a partnership agreement.

The rent payable reduces after a specified period as the buyer’s equity stake grows. Broadly, it is similar to a traditional mortgage in structure, but with the interest payments replaced by rent.

However, the costs of such arrangements are high, and Muslim buyers who take out one of these agreements need a large deposit.

Gatehouse Bank, currently the main Islamic bank offering residential home finance products, requires a minimum 25% deposit. That means on a property costing £320,000, you would need £80,000 to put down.

Monthly payments on a 25-year product would be between £1,694 and £1,781, depending on how long it is fixed for, taking the total cost of the property up to between £508,200 and £534,300.

HICH LTD has continually raised the quality standards in the UK property survey market. Our multi-award-winning property survey service has made us the leading reference in the property survey market.

We offer property survey services of the highest quality. Using state-of-the-art equipment, we provide excellent property surveys at affordable prices. Our prices are based on the number of rooms rather than the value of the properties, so you will always get the best value for money with our services.

Please look at our Trustpilot page and see why customers have chosen us as their favourite property survey provider!

At HICH LTD, we work to serve our clients and make the world a better place for everyone. We actively collaborate with NGOs to promote environmental, social, and charitable causes. If you want to know more about our efforts or how you can help, contact us at admin@hich-ltd.co.uk.

HICH LTD extends a warm invitation to contractors and service providers throughout the UK to join our network; by joining the Contractors and Service Providers Network, you will enjoy benefits such as a significant increase in customer flow, advertising on our high-traffic website, and direct contact with thousands of customers in your postcode area. Find more information here or by following the QR code in the video.