Islamic Mortgage: Why Can't Muslims Get A Mortgage?

Shakira
Post : November 12, 2022

One of the biggest investments a person will ever make is buying a house. There are wide ranges of home purchase plans offered by mortgage lenders to those who want to buy a house with the amount of money available. Many Islamic banks now offer mortgages compliant with the Sharia law for Muslims.  Before Islamic mortgages were available, it was difficult for Muslims to buy properties using conventional mortgage methods. 

Why is a mortgage not allowed in Islam?

Islam does not permit Muslims to purchase property using the traditional mortgage method because a traditional system involves Riba. Riba is the practice of lending and borrowing money with interest. 

As Islam forbids paying and receiving interest, Muslims have often found it hard to buy a house with the traditional mortgage system. However, since Muslims prefer to seek halal alternatives to purchase properties, Islamic mortgage options are becoming widely available worldwide. 

What is the difference between an Islamic mortgage and a Conventional mortgage?

The prime difference between an Islamic mortgage and a Conventional mortgage is based on interest. The general conventional mortgage system is where a person makes monthly payments with interest throughout the mortgage term.

Whereas for the Muslim community, there needs to be an alternative method to honour their beliefs. The Islamic mortgage method under Islamic banking helps Muslims access a loan to buy a property the halal way, which does not require paying interest. 

Why isn't Riba Sharia compliant?

Riba is considered haram in Islam, whether you are lending or the one who buys the property. Riba is an Arabic word that means 'to increase' or 'to exceed'. It is generally referred to as unequal charges and exchanges for borrowing.

Interest is considered as Riba or an exploitative gain. Hence it is forbidden under Islamic law. Islamic banking and finance are based on just. Islam does not permit profit from another's need for a loan. Most Muslims have given up on the thought that buying a house is necessary as they struggle hard to find Sharia-compliant mortgages. 

Therefore Muslims must rely on Islamic mortgages to buy a house. For that, finding the right bank with no interest is important. 

Halal Islamic Mortgages

Halal Islamic mortgages do not charge interest and allow Muslims to buy a property the Sharia-compliant way. Islamic mortgages are usually called Home Purchase Plans. 

Instead of charging an amount of interest, an Islamic mortgage is a system where the bank buys and owns the particular property you wish to buy. You will then have to make monthly payments, of which a part will go towards buying the property from the bank and the other as a payment for rent. 

Once the mortgage term ends, you will have repaid the bank, meaning the property's ownership can now be passed on to you. There are three main types of Sharia-compliant Islamic mortgages:

  • Ijara
  • Musharaka
  • Murabaha

Islamic mortgage providers should be regulated by the Financial Conduct Authority (FCA) and abide by its rules. This means you will be afforded the same protection with an Islamic mortgage as any other mortgage covered by the FCA regulation.

Risks of an Islamic Mortgage

It is important to remember that you could still lose your home if you do not keep up with the payments even though you are not borrowing money. Certain situations may arise where your property will be at risk if the provider goes bust or sells shares to another party. To protect yourself from such risks, seek legal advice before taking out an Islamic mortgage. 

How will I know if an Islamic mortgage is Sharia-compliant?

Islamic mortgage providers will generally have a committee or a panel of Islamic scholars to verify that their products and services comply with Islamic Sharia law. A genuine provider will share all this information with you if asked or even have it available on their website for everyone to see.

Who can apply for an Islamic mortgage?

Islamic mortgages are an alternative method for Muslims looking for a Sharia-compliant mortgage system to purchase a house, but even non-Muslims can use it too. To abide by the Sharia law, Islamic banks must have certain social and ethical responsibilities. This means they cannot invest in activities such as alcohol, tobacco, gambling etc. 

What type of fees will I have to pay?

The type of fees expected to be paid with a Sharia-compliant mortgage is mostly similar to that of a traditional mortgage. 

This means you should expect to pay the following:

  • Stamp duty
  • Valuation and survey fees
  • Legal fees for two solicitors - for you and the lender. 

Before you get into a home purchase plan, always think about your affordability since it is possible to face unexpected twists and turns in life.

Advantages of Islamic mortgages

  • Islamic mortgages are available to both Muslims and non-Muslims.
  • No interest is involved.
  • You can still buy a house while honouring Islamic laws. 
  • You can maintain your religious beliefs.
  • Islamic mortgages are regulated by the Financial Conduct Authority (FCA).
  • An ethical way of borrowing is offered.

Conclusion

The best idea is to explore all the options while still honouring your belief. Being a Muslim, it is important that you do not compromise your religious beliefs and principles in order to buy property. There are many options available for Muslims who are trying to access mortgages that don't ask you to pay interest. 

With such available services, it is easy to access Islamic Mortgages that comply with Shariah law. Speak to your bank and find out if they have any Islamic finance options that may be suitable for you, and go ahead with your purchase. With an interest-free mortgage system compliant with the Islamic law of Sharia, you can now own a house guilt-free through our Islamic home loan offers. 

 

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