Our expert conveyancing solicitors understand that within Islam different regulations apply when buying or selling a property.
We are here to assist you through the process of finding a sharia compliant mortgage and handle your conveyancing process in a sharia compliant manner, so you can be assured you will find the best deal that is also in compliance with your faith.
Conveyancing in Line with Your Faith
We are experts in sharia conveyancing law and are ready to assist you in the buying and selling process of your new home.
Additionally we can advise and guide you on right to buy scheme purchases, transferring of equity and remortgaging of your property.
Sharia Complaint Mortgages
There are three types of Islamic sharia compliant mortgages available set out to abide by sharia law.
These three options are all set out as a banking model in which no interest is charged, however where the bank or other lending institution still makes a profit.
Generally the bank will either earn their money as profit or as rent paid for living in the property until the mortgage is paid off.
The Difference between Standard and Sharia Mortgages
With standard mortgages the lender would transfer the money to the buyer of the property to pay the seller with.
With Islamic mortgages the bank will buy the property and the buyer will pay the bank back over an agreed period of time in instalments.
Exactly how the money is paid back to the lender depends on the type of mortgage; Musharakah, Murabaha or Ijara.
The Three Types of Islamic Mortgages
Diminishing MusharakahDiminishing musharakah is when one of the parties gradually purchases shares of an enterprise or property from the other party until they have full ownership. The asset(s) will be split into units and transferred gradually.
MurabahaThis is a type of Islamic sales contract where a bank purchases an asset on behalf of a client and later resells the asset to the same client with a mark-up.
IjaraThis is a type of Islamic mortgage in which the bank or lender will initially buy a property outright and the buyer will then pay gradual instalments to the lender, along with some form of monthly rent. Once the full price has been paid off to the lender, ownership of the property will be transferred to the buyer.
Sharia Compliant Home Purchase Plans
As the banking model for Islamic mortgages is different to the standard interest-rate based model, most banks refrain from using the word ‘mortgage’.
For example, Al Rayan, formerly known as ‘The Islamic Bank of Britain’, calls their services for muslims buying property ‘Sharia-compliant home purchase plans’.
In their case, the borrower pays both an acquisition payment and a rental payment to the lender.
The acquisition payments slowly increases the share the borrower holds on the property while the rental payment provides the lender with rent paid for the proportion of the property that the bank still owns.
Islamic Financial Services
Within Islam the use of certain financial products is prohibited.
Prohibited financial behaviour includes the holding of money in interest rate paying savings accounts and setting up standard mortgage agreements that charge their fees through interest rates.
Interest rate services will inevitable increase the wealth of the investor at the cost of the borrower, which in Islamic beliefs is seen as prohibited, or ‘Riba’.
Islamic Mortgages and Costs
Within the UK mortgage sector there is generally less competition in the market of sharia compliant mortgages compared to standard mortgages.
As a result sharia compliant mortgages are often less competitively priced. However, as they are not classed as actual mortgages the administration fees are often lower.
With an Islamic mortgage the property is initially purchased by the bank before it is transferred to the actual buyer. As a result it is likely that stamp duty will need to be paid twice.
Learn More About Islamic Financial Services
In modern Islamic views all forms of interest are 'Riba' - and are therefore prohibited.
Riba has been mentioned and condemned in multiple verses within the Qur'an. It is accepted throughout the Islamic community that Riba is prohibited, but what Riba truly means has been heavily debated over a long period of time, with multiple definitions of Riba remaining.
Interest charged on all loans
Riba can be defined as 'unjust', 'usury' or 'exploitative gains made from trade or business'. Usury is the practice of making immoral and unethical monetary loans unfairly enriching the lender at the borrowers expense. A well known example of such practices would be the activities of a loan shark or a payday lender.
In current communication the word Riba is often used to simply describe all 'interest charged on loans', as modern views generally see all interest paying financial services as prohibited.
Principles behind Islamic banking models
As all Riba is prohibited within Islam, muslims are prohibited to:
- Pay or charge any interest, and
- Invest in business involved in illegal or prohibited activities. Such prohibited activities could for example include the sale of:
History of Islamic banking
In the late 1940s the first accessible banking system was proposed based on the principles of Mudarabah, followed by the introduction of the first experimental Islamic bank on record in the late 1950s. This bank was first established in a rural area of Pakistan and charged no interest.
After the relatively successful experiment in Pakistan an Islamic economist in Egypt introduced the first modern Islamic bank in 1963.
The Islamic banks clearly met a need many muslims had, as the service spread quickly around the world following its initial introduction. In 1995, 32 years after the first modern Islamic bank opened its doors, 144 Islamic financial institutions were established worldwide. Of these institutions 33 were government owned banks.
Due to the use of a different banking model and the more ethical nature of investments, the Islamic banking sector was initially protected from the 2008 economic crisis. However, as a result of the strong drop in real estate and private equity, sectors heavily invested in, Islamic institutions did also suffer.
General terms often used in the Islamic financial sector
Hawala is a way of transferring money overseas without the money leaving the original country, meaning that no international bank transfer fees are paid.
Transactions are made on the basis of trust and the balancing of hawala brokers’ books.
Ijar / Ijarah
The word ijara is the Islamic word for lease. Under ijara, an asset may be leased to a lessee in return for an agreed amount of money over a particular period of time.
Formal ownership of the asset is not transferred through ijara.
Mudharabah is a type of profit sharing agreement, in which one party will invest money and the other will utilise their management and trade-specific expertise in order to get a new business up-and-running.
Under this agreement, the investor is known as the Rabbul Mal and the entrepreneur/business-owner is known as the Mudarib and together they will share the profits based on an agreed ratio.
Musharakah is a type of partnership in which two parties of an enterprise share both the losses and profits which could occur.
Sukuk is the Islamic equivalent to bonds, however sukuk is a type of financial certificate backed by assets.
The buyer of sukuk tends to then have partial ownership of the assets involved and will pay more or less for the sukuk depending on the value of the asset(s).
Takaful is a form of Islamic insurance where all parties contribute money into a shared pool system. The money in the pool system then acts as a guarantee which all parties can access if they face damages or loss.
A wadiah is an Islamic contract of safekeeping.
Under a wadiah, an individual will deposit funds or assets to a trustworthy Islamic bank in order to transfer the funds to safe custody.
'Zakat', the third pillar of Islam, which allows wealth to flow from the rich to the poor. Interest paying and charging financial products realistically would achieve exactly the opposite result.
Zakat is the compulsory giving of a set proportion of a persons income to charitable organisations and would commonly be 2.5 percent of the total savings and wealth of each individual. However, Zakat and the amount which should been given have been, like the true meaning of Riba, heavily discussed.
Expert Sharia Compliant Conveyancing Solicitors
Our specialist conveyancing solicitors will help guide you through the conveyancing process with ease, ensuring that all aspects are handled in a sharia compliant manner.
Find out more by calling or mailing us today and see what we can do for you.
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