How Islamic mortgages work, step by step
The three mainstream UK-resident providers we compare all offer home purchase plans. Instead of lending you money on interest, the provider buys the home with you, you pay rent on the share it owns, and part of your monthly payment gradually buys that share. Once you have acquired it all, the home is fully yours. Other Islamic structures, such as murabaha, work differently.
The mainstream UK-resident journey with Gatehouse Bank, StrideUp and Offa, from checking criteria to owning outright. The legal category is on our home purchase plan guide.
The short version
How do Islamic mortgages work, in one line: there is no loan and no interest. The provider takes an ownership interest in the property and you buy it back over an agreed term, living in the home throughout. How halal mortgages work is the same question with a different word. Set against a conventional mortgage, that changes who owns the property and which protections attach: the two arrangements compared.
Day to day it feels close to a repayment mortgage: one monthly payment, a fixed or variable rate, a term of 5 to 40 years and 7 to 40 years, an application, a valuation and a completion date. Some other Islamic products finance a purchase through a commodity sale, and the provider never owns your home; the home purchase plan page sets out the difference.
What the monthly payment is made of
Two parts: rent on the share the provider still owns, and an acquisition payment that buys a slice of that share. Each acquisition payment shrinks the provider's share, so next month's rent is slightly smaller.
The published rate sets the rent, so it plays the pricing role an interest rate plays, while the contract underneath is different. Why, and where scholars say the difference does or does not hold, is on our page on what riba is.
What this means
The rent portion falls over the term, as the interest element of a repayment mortgage does. Paying more early buys disproportionately more of your home, which is why the early settlement charge matters as much as the rate.
Where each monthly payment goes, year by year
The process, stage by stage
The common path. The order and the fee points vary by provider.
- Check the published criteria. Deposit tier, property type, nation, residency and age rule cases in or out before affordability. Our criteria checker runs them.
- Get a decision in principle. A provisional view on what you tell them. Not an offer.
- Submit the full application. Where money can start leaving your account. Gatehouse publishes a non-refundable application fee of £149 on submission for UK residents. StrideUp publishes no application fee, and its own pages disagree on when its product fee is due: its first-time buyer page says at this stage, before the valuation fee, while its tariff list (1 July 2026) says it is paid when you accept the offer. For most regulated home purchase plans the FCA rules require a financial information statement before the application, setting out the payments and costs, with an updated one at offer.
- Valuation. A down-valuation changes the finance-to-value and can move you into a worse deposit tier, or out of the product.
- Underwriting and offer. Income, credit history, the property and, for leasehold, the remaining lease. The offer sets out the payments and charges.
- Completion. The provider acquires its interest, you acquire yours. In a co-ownership structure the share is held on trust, so the paperwork differs from a mortgage.
- The term. Monthly payments, a fixed or variable initial period, then the follow-on rate unless you switch. At the end you own the property outright.
The fees, and when they fall due
The application fee pays for assessing your case, generally whether or not it completes. The product fee prices the deal and is usually much larger. When each falls due decides how much cash you need before completion.
| Provider | Application fee | Product fee | Early settlement charge | Term |
|---|---|---|---|---|
| Gatehouse Bank | £149, £0 | £999, £499, £0 | 2% year 1; 1% year 2 · 3%,3%,2%,2%,1% | 5 to 40 years |
| StrideUp | Not published | £1,249 | See offer and tariff | 5 to 40 years |
| Offa | £149 | £499, £999 | None · 2%, 1% · 5%,4%,3%,2%,1% | 7 to 40 years |
UK-resident products only, 36 records, checked . Expat and international fees are on the comparison page.
Do not assume a fee can be rolled into the finance. Gatehouse states that fees cannot be added to the finance amount and that the product fee is deducted from the finance at completion. The fee does not increase what you are financing; the money reaching your purchase is smaller by that amount.
A lower rate with a larger product fee can cost more over a two-year deal than a higher rate with a small one. Compare the total over the initial period in our calculator.
What happens when the initial period ends
You move to the provider's published follow-on rate. Initial periods on the UK-resident products we hold are 2 years and 5 years. The follow-on figures we track are Gatehouse Bank at 7.25% and Offa at 7.25%, above their lowest initial rates. We have not independently verified StrideUp's current follow-on rate.
Nothing switches you automatically. Note the end date when the offer arrives and review your options before it.
Overpaying, moving house, and settling early
Overpaying is generally allowed and buys the provider's share sooner. What limits it is the early settlement charge during the initial period, published per product. Of the 36 UK-resident records we hold, 32 publish a charge, 2 explicitly publish none (both Offa discounted variable products), and 2 do not state one either way. Those are StrideUp's, which point to the offer and tariff, so treat them as a charge that may apply.
Ask about moving house before you sign. Whether a plan can be transferred to a new property decides whether moving inside the initial period triggers the charge. StrideUp states that its products are not portable, and Offa's criteria guide lists portability among its exclusions; we have not found a published position for Gatehouse Bank.
Who can apply
Published criteria are entry conditions, not a decision; affordability and credit history are assessed separately. Three things vary enough to decide which providers are open to you:
- Deposit and property limits
- Maximum finance-to-value moves with property type, finance amount and transaction, and the tiers are not the same across providers.
- Residency and time in the UK
- One provider publishes a minimum period of UK residence. Visa cases are treated case by case and the published rules do not settle them.
- Employment and income evidence
- Self-employed trading history requirements differ, and in one case the provider’s own channels publish different rules, so there is no single figure to quote.
Check my situation Compare the providers Ask an adviser your question
What we could not verify
10 open questions across the three providers: things a reader hits during the process that the published material does not settle. Where a provider's own channels publish different figures, we hold both. Sources and their order of trust are in our methodology.
The 10 open questions
- StrideUp: Current rental rates
- StrideUp: Minimum age
- StrideUp: Minimum property value
- StrideUp: Self-employed one-year route: income condition scope
- Offa: Maximum applicant age
- Offa: Applicant count and income detail
- StrideUp: Standard-property maximum finance-to-value
- Gatehouse Bank: First Homes scheme acceptance
- StrideUp: Which occupations receive the 12-month residency treatment
- Gatehouse Bank: Visa criteria applied to self-employed applicants
The change log records what moved and when.
Common questions
- How do Islamic mortgages work?
- Most mainstream UK Islamic mortgages are home purchase plans. Instead of lending you money on interest, the provider buys the home with you, you pay rent on the share it owns, and part of your monthly payment gradually buys that share. Once you have acquired it all, the home is fully yours. Other Islamic structures, such as murabaha, work differently.
- What is the monthly payment made of?
- Two parts: rent on the provider’s remaining share, and an acquisition payment that buys a slice of that share. The rent portion falls as your share grows, in a pattern that resembles the way the interest element of a repayment mortgage falls.
- What happens when the fixed period ends?
- You move to the provider’s published follow-on rate unless you switch to a new product or to another provider. In the Gatehouse and Offa records we hold, that figure is 7.25%, above their lowest initial rates.
- Can you overpay an Islamic mortgage?
- Generally yes, subject to any early settlement charge during the initial period. Charges are published per product rather than per provider. Some publish none, and some do not state one either way, so check the charge on your specific product rather than assuming.
Key takeaways
- This is the mainstream route, not the only one. Some Islamic home finance finances a purchase through a commodity sale, and the provider never owns your home.
- The payment is rent plus acquisition. The rent element falls as your share grows.
- Two fees, two jobs, two moments. The application fee assesses your case; the product fee prices the deal, and Gatehouse states fees cannot be added to the finance amount.
- The follow-on rate matters. In our Gatehouse and Offa records it is 7.25%, above their lowest initial rates, and nothing moves you off it automatically.
- Early settlement charges are per product. Of 36 UK-resident records, 32 publish a charge, 2 explicitly publish none, and 2 do not say.
Next: what a home purchase plan is in law, or price it on your own figures.