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.
This guide follows the mainstream UK-resident journey used by Gatehouse Bank, StrideUp and Offa, from checking criteria to owning the property outright. For the legal category and the structures themselves, see 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 that interest back over an agreed term, living in the home throughout. How halal mortgages work is the same question with a different word, and for these three providers the answer is the same. Set against a conventional mortgage, that changes who owns the property and which protections attach: the two arrangements compared.
That is not true of every Islamic home finance product. Some arrangements finance a purchase through a commodity sale rather than co-ownership, and the provider never owns your home at all. Those sit outside this guide and outside the home purchase plan category, and we set out the difference on the home purchase plan page.
For the mainstream UK-resident journey, 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. What changes is who owns the property while you pay, what the payment is called, and a handful of consequences that follow from that.
What the monthly payment is made of
Two parts. The first is rent on the share of the property the provider still owns. The second is an acquisition payment that buys a slice of that share and transfers it to you. Every acquisition payment shrinks the provider's share, so the rent element of next month's payment is slightly smaller.
The rate a provider publishes sets the rent, so it plays the pricing role an interest rate plays, while the contract underneath it is a different one.
What this means
The mix shifts over the term in a pattern that resembles a repayment mortgage: the rent portion falls as the provider's share shrinks, and more of each payment goes towards acquisition. Paying more in the early years buys disproportionately more of your home, which is why the early settlement charge matters as much as the rate.
The process, stage by stage
The exact order varies by provider. This is the common path across the mainstream providers we track, and the fee points in particular differ, so check the sequence your provider publishes.
- Check the published criteria. Deposit tier, property type, nation, residency and age rule cases in or out before affordability is looked at. Our criteria checker runs your situation against what these three publish.
- Get a decision in principle. A provisional view based on what you tell them, not a commitment. It is not an offer and it does not survive contradictory evidence later.
- Submit the full application. This is where money can start leaving your account, and the timing differs. Gatehouse publishes a non-refundable application fee of £149 payable on submission for UK residents. StrideUp does not publish an application fee; its published first-time-buyer process takes the product fee at this stage and then the valuation fee. For most regulated home purchase plan journeys the FCA rules require a financial information statement before the application, subject to specific exceptions. It sets out the key information about the plan, the payments and the costs, and an updated one comes with the offer.
- Valuation. The provider values the property as the asset it is buying a share of. A down-valuation changes the finance-to-value and can move you into a worse deposit tier, or out of the product entirely.
- Underwriting and offer. Income, credit history, the property itself and, for leasehold, the remaining lease. You receive an offer document setting out the payments and the charges.
- Completion. The provider acquires its interest, you acquire yours, and the arrangement starts. For a co-ownership structure the share is held on trust, which is why 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
Two fees do two different jobs and readers routinely merge them. The application fee pays for assessing your case and is generally payable whether or not the case completes. The product fee is the price of the specific deal and is usually much larger. When each becomes payable is a published fact worth checking, because it decides how much cash you need before completion.
| Provider | Application fee | Product fee | Early settlement charge | Term |
|---|---|---|---|---|
| Gatehouse Bank | £149 | £999, £499 | 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, 28 records across the three providers, checked . Expat and international products carry different fees and appear on our comparison page with their customer scope stated. Fees change without notice.
Do not assume a fee can be rolled into the finance. Gatehouse states on its current product page that fees and charges cannot be added to the finance amount, and that the product fee is due at completion and deducted from the finance. In other words the fee does not increase the amount you are financing; it is taken out of the finance proceeds at completion, so the money reaching your purchase is smaller by that amount.
What this means: a product with a lower rate and a larger product fee can cost more over a two-year deal than a higher-rate product with a small one. Compare the total over the initial period, which is what our calculator does, rather than the headline rate.
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. If you do nothing when an initial period ends, the product moves onto that published follow-on rate and stays there until you act. Note the end date when the offer arrives, and review your options before it rather than after.
Overpaying, moving house, and settling early
Overpaying is generally allowed and buys more of the provider's share sooner. What limits it is the early settlement charge, which applies during the initial period and is published per product rather than per provider. Across the 28 UK-resident records we hold, 24 publish a charge, 2 explicitly publish none, and 2 do not state one either way. The two with no charge are both Offa discounted variable products. The 2 unstated are StrideUp's, whose material points to the offer and tariff rather than publishing a figure, so treat those as a charge that may apply rather than one that does not.
Moving house is the case worth asking about before you sign. Some arrangements can be transferred to a new property and some cannot, and the answer determines whether moving inside the initial period triggers the charge. We have not verified portability terms for the providers we track, so treat this as a question for the provider rather than a fact we can give you.
Who can apply
Published criteria are entry conditions, not a decision. Affordability, credit history and the property itself are assessed separately, and no provider publishes those thresholds. Three things vary enough between providers to decide which ones are open to you at all:
- 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.
We are not reproducing the full criteria here. Several of them are conditional, one provider's own channels publish different rules for the same criterion, and flattening any of that into a table of clean figures would be false certainty.
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What we could not verify
10 open questions across the three providers, published here rather than left out. They are the things a reader hits during the process that the published material does not settle.
- 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
Where a provider's own channels publish different figures for the same criterion, we hold both and check against both rather than choosing one. Our methodology sets out the sources we use and their order of trust, and 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 28 UK-resident records, 24 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.