Muslim Mortgages

Sharia law forbids the charging or paying of interest, meaning that the vast majority of mortgages available in the UK are not an option for Muslims who wish to stay true to the teachings of their faith.

Until fairly recently, specialist Muslim Mortgages were only available from foreign banks or small independent UK ones, meaning that most Muslims found it difficult to obtain home financing.

In recent years however, mainstream banks and building societies such as Lloyds TSB and West Bromwich BS have started to offer a range of Islamic finance products including mortgages.

How do they work?

As interest payments are forbidden, a normal mortgage isn't suitable. Obviously though, no bank will be willing to lend money without seeing some form of return on their investment, so how can any mortgage be arranged?

The most common form of Muslim mortgage uses a combination of interest free lending and rental charges.

The bank will buy a property for the mortgageholder to live in, and the amount borrowed will be paid back over a standard term of 25 years or so, without any interest being charged.

To provide a return for the bank, the mortgagepayer is charged rent for living in the house. The amount of rent charged will decrease over time, as the outstanding debt is reduced and the share of ownership in the property moves towards the borrower.

At the end of the term, the mortgage debt will have been cleared, the property will be solely owned by the resident, and the rental charges will stop.

It's predicted that the number of banks offering Sharia-compliant products will rise quickly over the next few years, with the industry coming under the regulation of the Financial Services Authority, as with all other kinds of personal mortgage.