Buying a home has often been problematic for Muslims due to the conflict arising between conventional lending practices in the UK and the desire not to compromise their beliefs. Unfortunately this has left many people in the situation where they feel forced to take out a conventional mortgage. The way Muslims conduct their financial affairs is governed by Sharia law. Abiding by Islamic law means that traditional mortgages of the type available in the UK have never really been suitable, due to the fact that the charging or receiving of interest is not allowed under Sharia law, as it is seen as unfair.
In the past, independent Islamic financial institutions have been set up to enable Muslims in the UK to purchase their own homes by providing loans without interest charges. More recently, mainstream lenders, particularly large banks such as HSBC, have begun to see that they were effectively ignoring a multi-million pound market by not catering to the needs of the Muslim community.
Typically, the way an Islamic mortgage works is that the lender and the 'buyer' (you) buy the property together. The lender contributes the majority share of the purchase price while you contribute a smaller share, normally about 20%. You can see that this is already one way in which an Islamic mortgage differs from a standard mortgage. Deposit requirements for a regular mortgage are rarely this high. You are also liable for the stamp duty. This is another major difference between Islamic and standard mortgages. Stamp duty on Islamic mortgages is paid twice because the property is effectively sold twice, the first time to the joint lender/buyer partnership and a second time when the loan has been paid off and the title reverts to you.
Once the property has been purchased and you move in you make two payments every month. One goes to the lender to pay off the loan and the other is rent, again to the lender, as a payment for the use of the property. Islamic mortgages tend overall to be more expensive than standard mortgages, but perhaps as more lenders begin to provide these types of mortgages, Muslims in the UK will hopefully have more choices available to them in the future.
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