Islamic Financial Solutions : Islamic Mortgages / Halal Mortgages

Home Purchase Plan

Islamic Mortgages is based on the accepted and widely used Islamic financing principles of Ijara and Musharaka. These two methods of Islamic finance offer a solution for Shariah compliant home finance in the UK today.

Described simply, both you and the Bank will each contribute towards the purchase of the home. For example, the Bank may contribute 80% and you 20% of the purchase price. Over a period of up to 25 years, you will make monthly purchase instalments through which the Bank will sell its share (80%) of the home to you. With each payment instalment, the Bank's share in the property diminishes while your share correspondingly increases. While the purchase instalments are being made, the Bank will charge you a rent for the use of its share of the property, the rent being calculated according to the respective shares owned. Many see this as little different to a conventional mortgage, because under both methods monthly payments are made which may be similar in amount. However, unlike a conventional mortgage, where money is lent to help with the purchase of a property, the Bank makes its profit through the property's physical use via your occupation as a tenant.

This is one of the fundamentals of Islamic finance whereby you can charge for the use of something physical, like a property, but you cannot charge for the use of money, because this is interest. The relationship between you and the Bank is also quite different. Two of the major differences are highlighted below.

As owner of the property, the Bank faces risks associated with property ownership. This is a situation that does not exist under an interest mortgage, where the bank never actually owns the property. In a conventional mortgage, the customer is the borrower. However, in an Ijara/Musharaka structure, the customer is the Bank�s tenant. This different relationship between the Bank and its customer presents the Bank with different risks and requires different remedies to problems that might occur.

Ijara with Diminishing Musharaka means that bank reduces their equity in the asset with any additional capital payment you make, over and above your rental payments. Your ownership in the asset increases and the bank�s decreases by a similar amount each time you make an additional capital payment. Ultimately, the bank transfers ownership of the asset entirely over to you.

It is crucial differences like these that allow Shariah Scholars to approve a product and that make Shariah compliant home finance an acceptable way for Muslims to refinance, or finance the purchase of their homes.

The amount of rent is calculated so that it is charged in a consistent way. Scholars have permitted the use of LIBOR & BBR as the basis for calculating rent. LIBOR -means the London Inter-bank Offered Rate, BBR � stands for Bank of England Base Rate and are benchmarks that are well known. That is why they are used to work out the amount of rent to charge. The LIBOR & BBR are only benchmarks -something that is referred to. Payment of rent is made under a lease (Ijara) agreement.

A review is also undertaken by the bank normally twice a year. Providing a product that has variable Rent is important to both customers and the Bank. It is important that the Rent payable remains competitive and provides a rate of return that is comparable with the profit that is made by other providers when advancing conventional non-Islamic loans. At the same time, customers want the flexibility of knowing that if the rates that are used for benchmarking purposes go up or down, their Rent will accordingly be adjusted. There is a further reason why the Bank adjusts the Rent. Some customers may wish to make additional Acquisition Payments, which can be made immediately prior to the Rent Review. There are no penalties for making lump sum payments or to sell your property at any point.

. our services . personal . business . about us . non-uk citizens . banking . unsecure finance . property finance . home finance . buy to let	Home Purchase Plan Islamic Mortgages is based on the accepted and widely used Islamic financing principles of Ijara and Musharaka. These two methods of Islamic finance offer a solution for Shariah compliant home finance in the UK today. Described simply, both you and the Bank will each contribute towards the purchase of the home. For example, the Bank may contribute 80% and you 20% of the purchase price. Over a period of up to 25 years, you will make monthly purchase instalments through which the Bank will sell its share (80%) of the home to you. With each payment instalment, the Bank's share in the property diminishes while your share correspondingly increases. While the purchase instalments are being made, the Bank will charge you a rent for the use of its share of the property, the rent being calculated according to the respective shares owned. Many see this as little different to a conventional mortgage, because under both methods monthly payments are made which may be similar in amount. However, unlike a conventional mortgage, where money is lent to help with the purchase of a property, the Bank makes its profit through the property's physical use via your occupation as a tenant. This is one of the fundamentals of Islamic finance whereby you can charge for the use of something physical, like a property, but you cannot charge for the use of money, because this is interest. The relationship between you and the Bank is also quite different. Two of the major differences are highlighted below. As owner of the property, the Bank faces risks associated with property ownership. This is a situation that does not exist under an interest mortgage, where the bank never actually owns the property. In a conventional mortgage, the customer is the borrower. However, in an Ijara/Musharaka structure, the customer is the Bank�s tenant. This different relationship between the Bank and its customer presents the Bank with different risks and requires different remedies to problems that might occur. Ijara with Diminishing Musharaka means that bank reduces their equity in the asset with any additional capital payment you make, over and above your rental payments. Your ownership in the asset increases and the bank�s decreases by a similar amount each time you make an additional capital payment. Ultimately, the bank transfers ownership of the asset entirely over to you. It is crucial differences like these that allow Shariah Scholars to approve a product and that make Shariah compliant home finance an acceptable way for Muslims to refinance, or finance the purchase of their homes. The amount of rent is calculated so that it is charged in a consistent way. Scholars have permitted the use of LIBOR & BBR as the basis for calculating rent. LIBOR -means the London Inter-bank Offered Rate, BBR � stands for Bank of England Base Rate and are benchmarks that are well known. That is why they are used to work out the amount of rent to charge. The LIBOR & BBR are only benchmarks -something that is referred to. Payment of rent is made under a lease (Ijara) agreement. A review is also undertaken by the bank normally twice a year. Providing a product that has variable Rent is important to both customers and the Bank. It is important that the Rent payable remains competitive and provides a rate of return that is comparable with the profit that is made by other providers when advancing conventional non-Islamic loans. At the same time, customers want the flexibility of knowing that if the rates that are used for benchmarking purposes go up or down, their Rent will accordingly be adjusted. There is a further reason why the Bank adjusts the Rent. Some customers may wish to make additional Acquisition Payments, which can be made immediately prior to the Rent Review. There are no penalties for making lump sum payments or to sell your property at any point. Your home may be repossessed if you do not keep up repayments due under a legal agreement. The guidance and advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK.	0141 416 0786 info@islamicfinancialsolutions.co.uk Islamic Financial Solutions specialises solely in Islamic - Ethical Products. From day to day running of your business or personal banking, to providing finance for homes and commercial property, there now is another choice.
Islamic Financial Solutions is a trading name of Black & White Network Limited, which is an Appointed Representative of Pink Home Loans. Pink Home Loans is a trading name of Advance Mortgage Funding Limited which is authorised and regulated by the Financial Services Authority.		© Islamic Financial Solutions 2011 Islamic Financial Solutions is a trading name of Black & White Network Limited, registered in Scotland company registration number 257139