UK Islamic Home Purchase Plans available from FSA Regulated Providers

The purchase of a home can be difficult for those who abide by Islamic law, unless there is a pot of cash available to buy a property outright. Conventional mortgages are not an option as the Quran has a prohibition against dealing with interest. There are mortgage providers based in the UK which have addressed this issue by creating products which are in full compliance with Sharia law: however that is a matter of interpretation as different Sharia scholars interpret the law in different ways, thus what is acceptable in one scholarly view may not be in another.

The Financial Services Authority has made great strides to encompass banks and firms specializing in Sharia compliant services, and to ensure that they are regulated. The three most established sources of Islamic financial products are The Islamic Bank of Britain, The European Islamic Investment Bank and The Bank of London and the Middle East.

There are also FSA authorised brokers such as who can provide advice and assistance to those seeking a none interest bearing product. The FSA itself makes information available to interested parties in Urdu, Arabic and Bengali, and advises Muslims to only deal with FSA regulated companies.

The solution to mortgages which do not charge interest is home purchase plans. However these can be risky products and quite complex. There are two kinds of home payment plans known as Ijara and Musharaka. A diminishing Musharaka product means that the buyer chooses their property at a price agreed with the seller. The bank then purchases the house at a higher price and the borrower pays back an agreed amount monthly to cover the total costs after the deposit. With this product the buyer owns an additional share in the property with each payment until the end of the agreed term.

With an Ijara the product is a lease to own plan. The buyer again has the property purchased by the bank but enters into a lease agreement with the bank and pays monthly rent for a set term until the property is legally transferred to the buyer.

Anyone using these types of product will not legally own the property they buy until the end of the term of the mortgage. These Islamic model products are risk based and buyers should take legal advice to familiarise themselves with the complexities of the products. The FSA also advise that buyer’s check which scholars have checked the company or bank services do comply with Islamic law. Islamic providers of home purchase plans also make their products available to those outside the Islamic faith who would like to avail themselves of these products.

Sources. The Islamic Bank of Britain