Islamic mortgage terms, explained

The part of a home purchase plan payment that buys a slice of the share the provider still owns. The other part is rent. As acquisition payments accumulate your share grows and the rent element shrinks.

How the monthly payment is made up

A co-ownership partnership in which you buy out the provider's share over time while paying rent on the part you do not yet own. The International Islamic Fiqh Academy permits it subject to conditions set out in Resolution 136 (2/15). In our register it is the structure stated by Gatehouse Bank, StrideUp and Offa, counting Gatehouse Bank from the documents its Sharia certificate names.

The structures UK providers use · The conditions and who certified what

The finance amount as a percentage of the property value, the Islamic finance equivalent of loan-to-value. Providers publish a maximum per product, and it sets which products your deposit reaches. We spell it out in full on every page rather than abbreviating it.

Every published deposit tier · What the next £1,000 of deposit changes

Excessive uncertainty in a contract: terms, price or subject matter left undefined in a way that makes the bargain a gamble. Islamic contract law treats it as a ground of invalidity, which is one reason Islamic home finance contracts specify what is being sold or let, for how much, and when.

The UK regulatory category most Islamic mortgages fall into: the provider buys the home or a share of it, you buy that interest over time, and you or a family member occupy at least 40% of it. Defined in article 63F of the Regulated Activities Order and regulated by the FCA.

What a home purchase plan is

A lease. In home finance the provider owns the property and lets it to you, with an arrangement for ownership to pass to you over or at the end of the term. Fiqh Academy Resolution 110 (4/12) separates permissible lease-to-own forms from prohibited ones. In our register it is stated, alone or alongside musharaka, by StrideUp, Offa and Kuwait Finance House PLC, counting Gatehouse Bank from the lease its Sharia certificate names.

The structures UK providers use

A sale at a disclosed cost plus a disclosed profit, paid in instalments. In property murabaha the provider buys the home and resells it to you; in commodity murabaha, also called tawarruq, a commodity trade raises the cash and you buy the home yourself. The two are different mechanisms with different regulatory consequences. In our register murabaha in one form or the other is stated by Kuwait Finance House PLC, Al Rayan Bank Premier Home Finance, Nomo by BLME and QIB (UK) plc.

What is murabaha? The full page · Why not every Islamic product is a home purchase plan

The rate a provider publishes. On a home purchase plan it sets the rent on the share you do not own; on a murabaha product it sets the profit in the sale price. It plays the pricing role an interest rate plays and is set against conventional benchmarks, while the contract underneath is a lease or a sale rather than a loan.

Current published rates · Why the distinction matters

The increase that Islamic law forbids: extra charged for lending money or deferring a debt, and unequal exchange of the same commodity. In banking it means interest on a loan. Every UK Islamic mortgage is built to finance a home without one.

What is riba? The full page

A statement by named scholars, or a scholarly advisory firm, that a product’s contracts meet a stated standard. It is evidence of one body’s assessment of one set of documents on one date, not a consensus and not a ruling by us. Being FCA-regulated is a separate matter and says nothing about it.

Who certified each UK product

The rate a product moves to when its fixed or discounted period ends, set by the provider and changed at its discretion. The follow-on rate is often the number that matters most over the life of a plan, and we record it where a provider publishes it.

Rates with their follow-on rates · Switching when the initial period ends

Certificates giving the holder a share in an asset or venture and its returns, used where a conventional issuer would sell bonds. An investment instrument, not a home finance one. Included here because readers meet the word; nothing on this site prices or compares it.

Cooperative insurance in which participants pool contributions to cover one another’s losses, structured to avoid the interest and uncertainty scholars object to in conventional insurance. Buildings cover is a condition of every home purchase plan; whether any UK provider requires or offers takaful specifically is not something we have verified.

Raising cash through a commodity trade: the provider buys a commodity, sells it to you at a deferred marked-up price, and the commodity is sold on for cash you use to buy the home. You own the home from the outset and the provider takes a charge over it, which is why these products sit in the mortgage regime rather than the home purchase plan one. Stated by Kuwait Finance House PLC, Al Rayan Bank Premier Home Finance and Nomo by BLME in our register.

How commodity murabaha works, and who offers it · How it differs from a home purchase plan