Prospective Muslim homebuyers will now be able to use a Shari’a compliant alternative to mortgages following an announcement made by the Treasury.
Paying interest to a lender under a traditional mortgage arrangement is prohibited by Shari’a law. Islamic banks instead offer Home Purchase Plans (“HPPs”), under which ownership of a home is split between the customer and the bank. The homeowner buys a portion of the property outright with their initial deposit and then pays regular instalments to the bank covering rent for the portion they do not own and an ‘acquisition payment’. It means they gradually buy the property from the bank and over time become the sole owner.
The government has now amended the rules governing the scheme to allow banks that sell HPPs to purchase a government guarantee for them.
The Islamic Bank of Britain has become the first lender to announce its intention to participate in the scheme. Treasury minister Sajid Javid stated:-
“I am delighted Home Purchase Plans will now be available under the Help to Buy scheme, this gives even more choice to hardworking families across the UK trying to fulfil their home owning aspirations.”
The announcement from the Treasury comes in the wake of the UK planning to become the first non-Muslim county to offer Sukuk (Islamic Bonds) for trade. Sukuk are financial instruments that are similar to government-issued sovereign bonds. Shari’a finance prohibits riba (interest) and does not allow one party to make financial gains unjustly at the expense of another party. These Islamic bonds adhere to the principles of Islamic law as they pay investors a fixed return based on the profit generated by an underlying asset.
David Cameron at the World Islamic Economic Forum last year told delegates that the issue of Sukuk in 2014 would be worth in the region of £200 million with input from industry. This coupled with the opening of a new Islamic Index on the London Stock Exchange, could bring to the UK a share of the £1.3 trillion global Islamic investment.
The London Stock Exchange is an attractive draw for Islamic finance listing, with over 49 Sukuk listings valued at $34 billion over the last five years. The markets have seen global Islamic investments soar by 150% since 2006. Money from Islamic finance has already made a huge impact on iconic properties in London, financing the Olympic Village, the Shard building and the Emirates Stadium, home of Arsenal FC.
If you are thinking of moving home or adding to your property portfolio, we at Blacks can provide a complete legal service to guide you through the process.
Please contact Luke Patel
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or by email at LPatel@LawBlacks.com