What is an Islamic mortgage?
What is an Islamic mortgage?
It’s against Islamic laws for Muslims to pay or receive interest, which is obviously a huge problem for Muslims living in Britain where interest rates play such a big part in our economy. Many UK banks have recognised this problem and are starting to offer an alternative in the form of three Islamic mortgages; Ijara, Musharaka and Murabaha.
The Ijara offers a lease-to-own solution where the mortgage provider buys the property chosen by the borrower who then makes repayments in a similar manner to paying rent and the capital. At the end of the repayments ownership is then transferred to the borrower.
Musharaka introduces the shared ownership scheme, where the provider once again buys the property and in affect gives the buyer a proportion of the property ownership every time they make a monthly repayment. Eventually once all the repayments have been made the whole property will belong to the buyer.
Under a Murabaha mortgage the mortgage provider buys the property and then re-sells the property to the borrower but at a higher price, with fixed monthly repayments spread through out the agreed term. A typical example would be where the provider buys the property for the borrower at £100,000 but requires them to pay back £150,000.
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