In today’s society, having multiple choices is the norm. We should never compromise on our values or beliefs. If you are looking for Shariah-compliant ways to buy a home, we respect your preference based on religious principles. At Connect Mortgages, we are dedicated to ensuring our processes meet Shariah guidelines. Previously, we explored the topic, “Do UK banks offer Islamic mortgages?”
The answer is yes, but today, it focuses on how Islamic mortgages work. Islamic mortgages, often called home purchase plans (HPP), differ from traditional mortgages due to their interest-free structure. Instead of charging interest, these mortgages use a leasing or partnership model to comply with Shariah principles. Once approved, you can access the funds required to buy your chosen property.
Here’s how it works:
The bank acts as the legal owner and purchases the property on your behalf. As the occupant, you will make monthly payments structured similarly to rent. These payments contribute towards gradually buying the property from the bank without including interest charges.
Opting for an Islamic mortgage fulfils the halal requirement of avoiding interest-based transactions. Over the course of your mortgage term, as you make regular payments, you progress towards complete ownership of the property. Once you have successfully completed all payments within the agreed-upon term, the property becomes entirely yours. If there is a remaining balance at the end of the term, it must be settled to obtain full ownership.
Can anyone get an Islamic mortgage?
Islamic mortgages are designed for individuals who value the ethical principles of Islamic finance and wish to avoid interest-based borrowing. These mortgages provide a clear and transparent understanding of the total cost from the outset, aligning with ethical preferences.
A key feature of Islamic mortgages is their compliance with Sharia principles, as they do not involve interest charges. This ensures that the financing remains ethically and religiously appropriate for those seeking such alternatives.
Lenders offering Islamic mortgages adhere to strict ethical standards. They ensure funds are not invested in industries like alcohol or gambling, which conflict with Islamic beliefs. This allows borrowers to maintain financial dealings consistent with their values and faith.
Islamic mortgages are available to anyone who appreciates their ethical framework, regardless of religious background. They provide a responsible, values-based alternative to conventional financing options.
How do you know that banks are Shariah compliant if it’s not an Islamic bank?
To ensure Islamic mortgages comply with Shariah law, banks must seek certification from recognised Islamic legal authorities. These authorities typically consist of Islamic scholars specialising in finance and Islamic principles.
Financial institutions offering Islamic mortgages should clearly outline their Shariah compliance procedures. They often consult Islamic scholars or establish Shariah boards to monitor and approve their financial products. These boards ensure mortgages and other offerings meet Islamic ethical standards.
Always ask about the provider’s Shariah compliance process and certifications when choosing an Islamic mortgage. Reputable providers will supply documentation, such as certifications from Shariah boards or endorsements by respected Islamic finance organisations.
Financial institutions can provide Islamic mortgages that meet Shariah principles by working with recognised Islamic legal experts. This reassures customers who value compliance with Islamic ethics.
How much deposit do you need for an Islamic mortgage?
A minimum deposit of 20 per cent of the property’s purchase price is required to qualify for an Islamic mortgage. This aligns with the typical deposit requirements for conventional mortgages in many instances.
Beyond the deposit, additional costs must be considered when purchasing a property. These include surveys, building insurance, stamp duty (a tax applied to property transactions in the UK), and fees such as those for mortgage brokers and legal services. Proper budgeting for these expenses is crucial to ensure a smooth homebuying process.
It is important to note that deposit requirements and related costs can differ depending on the lender, the type of Islamic mortgage, and individual circumstances. Consulting with a reputable Islamic mortgage provider or financial advisor is strongly recommended for tailored advice specific to your situation.
Conventional mortgages Vs Islamic mortgages
Islamic and conventional mortgages differ significantly in their principles and practices. Conventional mortgages involve interest payments, which are prohibited in Islamic finance.
Islamic mortgages comply with Shariah law by avoiding interest. In these arrangements, the bank purchases the property and allows the customer to repay over time. This structure ensures compliance with Islamic legal principles.
Regulation and Customer Protection
UK financial authorities regulate both Islamic and conventional mortgages. Islamic banks are supervised by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). These regulations protect customers and provide avenues for resolving disputes.
Deposits in Islamic banks are protected by the Financial Services Compensation Scheme (FSCS). This covers up to £85,000 in savings or current accounts, offering customers additional financial security.
Some individuals perceive Islamic banks as safer due to their strict ethical guidelines. These banks avoid high-risk activities like derivatives trading, speculative investments, or financing industries deemed unethical. This approach appeals to customers seeking a socially responsible form of banking.
Accessibility and Choosing the Right Mortgage
Islamic financial products are available to both Muslims and non-Muslims. Non-Muslims may choose Islamic banks for competitive savings rates or flexible products, such as Home Purchase Plans, which allow early repayment without penalties.
The choice between Islamic and conventional mortgages depends on personal preferences, religious beliefs, and financial goals. It is essential to compare terms, features, and compatibility with your values before deciding.
What you need to know
At Connect Mortgage, we recognise that obtaining a mortgage goes beyond financial considerations. Cultural and religious values matter deeply to many. For this reason, we proudly offer Islamic mortgages designed to align with Shariah principles.
With Connect Mortgage, you can enjoy peace of mind knowing your mortgage is ethical and transparent. Our dedicated team ensures an interest-free solution that respects your faith and values.
If you’re looking for a Shariah-compliant mortgage, we are here to help. Our experienced team will support you every step towards achieving home ownership. Contact us today, and let us help you realise your goals.
Thank you for reading our publication “ How Do Islamic Mortgages Work? | The Profound Understanding.” Stay “Connect“-ed for more updates soon!
