UK Mortgages : Islamic Halal Mortgages

If you are a Muslim living in the UK then you have no doubt experienced problems owing to the law against making and receiving interest payments. Only if you have substantial capital can you afford the outright purchase of your home.

Islamic Finance

A form of business and that is bound by strict religious rules; these rules normally prevent the making of a profit in association with non Islamic organisations or individuals. It is now acceptable, however, for internal profits to be generated, which may be achieved using an Islamic Investment Company and any of the following. Murabah is a good vehicle for temporary idle funds, which are used to purchase goods from a supplier for immediate sale and delivery to the buyer, who pays a predetermined margin over the cost on a deferred payment date. The term can be a shorter seven days. Musharaka transactions involve participation with other parties in trade financing, leasing, property, and industrial projects. Net profits are shared in proportions agreed at the outset. Ijarah involves profit from rental income on property. Ijarawa-iktina is leasing of large capital items, such as property or plant and machinery. Leasing is achieved by the equivalent of monthly rental payments, and at the expiry of the lessee purchases the equipment.

However, now there are two alternatives available that are offered by many banks and building societies; the Murabaha Mortgage, which is suitable if you have capital; and the Ijara Mortgage, which is suitable if you require a more flexible arrangement.

Murabaha:

These mortgages can be comparative or similar to deferred sale finance. Moreover this type of mortgage option is usually reserved for those families or individuals who have certain amount capital reserved. This is mainly due to the fact there is a pre-requisite for the requirement of a down payment of 20%. Of the purchase price of the property you want. The payment is made when you are usually give the home or the day you become the legal owner of the property. This package offers a fixed re-payment period that is agreed between the borrower and your lender, any a monthly re-payment amount that is fixed for the term of your mortgage. So the main question is how does such a mortgage work? Once the preferred property has been established and the sale price of the house has been established, the bank then pays the purchase price. What is usually charged to the borrower is the higher than the initial price of the house.

The terms of this Mortgage package dictate that you are expected to pay (circa.) 20% of the properties value, from that day the house will be registered in your name. You can pay off any debt that is outstanding on your home at any point during the term.

• Murabaha features

  • Fixed repayment period that is agreed between you and your lender.
  • Monthly repayment amount that is fixed for the term of the mortgage.

Murabaha Islamic Mortgage | Explained

Ijara:

This is considered a more popular choice amongst the muslim community. The main reason for its popularity is because there is no real need to have a large cash up front payment and also it is considered more flexible than the Murabaha. The other reason for its popularity is because the Ijara mortgage can be also taken out to replace an existing interest mortgage. The amount one has to pay each month is usually fixed on a yearly basis. Also the outstanding balance can be paid off at any time (usually) without the norm of incurring penalties .

The Ijara Islamic Mortgage:

Not needing a large amount of capital behind you to set up this mortgage is its best feature, it is also slightly more flexible than the Murabaha islamic Mortgage. The amount you pay each month is normally calculated annually.

• Ijara Features

  • The outstanding balance can be paid off at any time without incurring any penalties.
  • the the Ijara Islamic mortgage can even replace an existing conventional interest mortgage.

The Ijara Islamic Mortgage: Explained