The new product from the Islamic Bank of Britain is a direct bid to win a bigger share of the UK's mainstream mortgage market, the bank confirmed. "We are throwing down the gauntlet to conventional banks with this new fixed rate Home Purchase Plan," said Sultan Choudhury, Commercial Director at Islamic Bank of Britain.
The bank is offering a rate of 3.99% with an arrangement fee of £299 and claims it is one of the most competitive offers currently available in the UK home finance market.
"Not only is our Home Purchase Plan extremely competitive, Islamic Banking is also considered by many as an ethical and stable alternative to conventional banking," Choudhury added.
"The Bank is open to customers of all faiths, so my call to UK homebuyers and homeowners is to put any misapprehensions to one side and come and find out how a Home Purchase Plan from IBB can really make a difference to your pocket," he said.
The bank also wants to dispel a myth that it says exists that Islamic Banking is costly. It says that the new product will have no penalties for making extra capital payments, no minimum collar rate, and no tie–in when the fixed rate ends.
It also explained how Islamic mortgage differ from conventional mortgages as interest is forbidden in Islamic banking. Each monthly payment will consist of two elements: Rent is the amount that the customer is paying to the Bank as rent on the Bank's share of the property in accordance with an Ijara (Lease) agreement. An acquisition portion which is the amount that the customer is paying to purchase a part of the Bank's share in the property in accordance with a Diminishing Musharaka (partnership) agreement.
The rent element decreases as the Bank's share in the property decreases with each acquisition payment. Correspondingly, the customer's equity in the property increases, with every payment.
The customer can buy the Bank's share, in part or full, or sell the property at anytime without any penalty. The Bank does not claim any share in any appreciation of the property.
The new product is fixed until June 2010, there is a minimum of £70,000 and a maximum finance of £750,000 as well as a minimum property value £150,000.
