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Sharia'a Approved Home Purchase Plan
Sharia Mortgages Money House
  • Market competitive - available to all customers regardless of faith
  • Rates start from 4.19%
  • Up to 80% finance offered - property value must be over £100,000
  • Only £299 administration fee
  • No penalty for lump sum payments and no early repayment charges
  • Minimum finance of £70,000 - Maximum £750,000.  Exceptions considered.
  • Income from up to four people can be taken into account
Subject to status. Terms and conditions apply.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

How the Home Purchase Plan works

When did the Islamic Bank of Britain begin offering ‘the mortgage alternative’?

On 1st July 2008, the Islamic Bank of Britain (IBB) announced that it was launching a Home Purchase Plan (HPP), referred to as ‘the mortgage alternative’, allowing homes to be purchased while remaining Sharia’a compliant.

 

The Islamic Bank of Britain’s Home Purchase Plan follows the Islamic financing principles of Ijara (leasing) and Diminishing Musharaka (partnership). This plan allows both the customer and the bank to contribute towards the property, effectively becoming partners.

 

The customer can then make monthly payments and eventually purchase the bank's share. As each repayment is made, the bank's share in the property is reduced and the customer's is increased until the agreement is completed and the customer finally owns the property outright.

 

Who has approved the new mortgage plan?

The Islamic Bank of Britain’s Home Purchase Plan has been approved by the Bank's Sharia’a Supervisory Committee.

 

How does a Sharia’a compliant plan differ to a conventional mortgage?

The table below outlines the key differences between the two:

 

Sharia’a Compliant Plan

Interest Mortgage

The customer is renting the property from the Bank and will pay rent on the occupied share of the property

The customer is paying interest on money borrowed as a loan received from the bank

Both the bank and the customer are responsible for maintaining the property

The customer is fully responsible for maintaining the property

The bank charges an income in the form of rent for using its share of the property

The bank charges an income in the for of interest on the loan borrowed by the customer

The partnership between the customer and the bank puts equal risk for both parties associated with ownership of the property

The bank carries no ownership risks

The bank will legally own the property but the customer will have the beneficial interest of the property and the leasehold

The customer is the legal owner of the property

 

Below is an example of how the plan works:

 

You are interested in a property that costs £150,000. You have £30,000 (20%) to pay towards the property. You want to spread the remaining cost over a 25 year period. The Bank would pay £120,000 (80%) and you would pay £30,000 (20%), with all payments managed via the solicitors.

 

Based on this example, your monthly payment would be as follows:

 

Date

Acquisition Payment

Rent

Total Monthly Payment

Jul

£333.33

£615.85

£949.18

Aug

£335.26

£613.92

£949.18

Sept

£337.19

£611.99

£949.18

Oct

£339.12

£610.06

£949.18

Nov

£341.05

£608.13

£949.18

Dec

£342.98

£606.20

£949.18

 

These payments are split into two components:

  • Rent – This is the amount paid to the bank for its share of the property. This is covered by the ljara (lease) agreement.
  • Acquisition – This is the amount paid towards buying out the bank's share in the property. This is covered by the Diminishing Musharaka (partnership) agreement.

As the bank's share is reduced with every acquisition payment, the rent reduces periodically to reflect this.

 

The rent costs are fixed for the initial period of the Lease Agreement until either the end of March, or the end of September, whichever comes first after the date of completion. After this, the rent costs will be fixed for six-month blocks and will be reviewed in March and September each year.

 

At each Rent Review date the rent rate may increase, decrease or stay the same.

 

All rent payments are due in arrears and IBB will write to advise of any new payments in good time. The lease agreement sets out how the rent is calculated, how it may vary, and also explains that you have the option to purchase the bank's share (i.e. pay the remaining acquisition cost) at any time, subject to terms and conditions.

 

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