Are Islamic mortgages more expensive than conventional ones?

The overall cost is often comparable. While the profit rates may be similar to interest rates, the structure is fundamentally different and Sharia-compliant. It's important to compare the total cost over the term of the agreement, including all fees, to make a fair comparison.

How Do Islamic Mortgages Work? Two Common Models

In the UK, most Islamic mortgages operate under one of two main structures:

1. Ijara (Lease to Own)

This is one of the most common models.

1. The bank buys the property you have chosen.
2. You then lease the property from the bank by paying regular monthly payments.
3. A portion of each payment goes towards rent, and another portion goes towards you gradually buying the property from the bank.
4. You become the legal owner once the final payment is made.

2. Murabaha (Cost-Plus Sale)

This model works as a straightforward sale.

1. You find a property and the bank buys it at the agreed price.
2. The bank then immediately sells the property to you at a higher, pre-agreed price.
3. You pay this total price back in instalments over an agreed term.
4. The bank's profit is built into the sale price, not charged as interest.

The Step-by-Step Guide to Getting an Islamic Mortgage

Navigating the process is similar to a conventional mortgage, with a few key differences.

Step 1: Check Your Eligibility & Affordability

Just like any mortgage, the provider will need to check your financial status. This includes:

1. Your income and employment status.
2. Your credit history (while interest-free, lenders still need to assess reliability).
3. Your regular expenditures.
4. The size of your deposit (typically, you'll need at least 20-30%).

Step 2: Find a Property and Get an Agreement in Principle
Once you have found a property you wish to buy, you can approach your Islamic mortgage provider for an ‘Agreement in Principle’ (AIP). This will give you an idea of how much you can borrow and shows sellers you are a serious buyer.

Step 3: Formal Application and Property Valuation
You will submit a full application. The bank will conduct a valuation on the property to ensure it is worth the purchase price.

Step 4: The Legal Process
A solicitor will handle the legal work. It's crucial to use a solicitor experienced in Islamic mortgages in the UK, as the contracts are different from conventional ones. They will represent you, while the bank will have its own legal representation.

Step 5: Exchange of Contracts and Completion
Once all checks are complete and contracts are signed, you exchange contracts with the seller. On completion, the bank buys the property, and you begin making your monthly payments under the Ijara or Murabaha agreement.

Step 6: You Move In
The property is now your home! You are responsible for all maintenance, insurance, and council tax, just as you would be as the owner.

Key Providers of Islamic Mortgages in the UK

While not an exhaustive list, the following banks are prominent players offering Sharia-compliant home purchase plans. It's important to note that product availability and criteria can change, so always check directly with the lender or an adviser for the most current information.

1. Al Rayan Bank: One of the most well-known Islamic banks in the UK, offering a range of residential and buy-to-let home purchase plans (HPPs) based on the Diminishing Musharaka model.
2. Gatehouse Bank: Specialises in Islamic finance and offers a variety of Sharia-compliant products, including home purchase plans for both residential and investment properties.
3. Ahli United Bank (UK): Provides a suite of Islamic banking services, including home finance solutions designed to be fully compliant with Sharia principles.

Other notable names in the market include United National Bank and newer, innovative platforms like StrideUp.

Your Next Step with Rock Finance

Understanding your financing options is the first step towards a home that is both a sound investment and a peaceful, halal haven for your family.

At Rock Finance, we specialise in helping our clients navigate the world of Islamic mortgages in the UK. Our experts are here to explain your options, guide you through the process, and find a Sharia-compliant solution that works for you.

Ready to begin your halal home-buying journey? Contact Rock Finance for a friendly, no-obligation consultation today.