‘Neither a borrower, nor a lender be, for loan oft loses both itself and friend’ – from Hamlet by William Shakespeare.
Shakespeare obviously paid heed to the principles of Sharia law that making money from money, i.e. interest, is not a good thing. Sharia law comes from a number of sources including the Qur’an – the Muslim holy book, the Hadith – sayings and conduct of the prophet Mohammed, and fatwas – the rulings of Islamic scholars.
All aspects of a Muslim’s life are governed by Sharia law. The 2001 UK census revealed that 2.7 per cent of the population declared themselves to be Muslims – the second highest stated religion. Christians topped the list at 71.6 per cent.
Abiding by Sharia law means that taking out an interest-paying mortgage to buy a house is not an option. Consequently, because of the legal situation and the way the traditional market has operated in the UK, many British Muslims found it difficult to balance their faith and beliefs with the realities of the British mortgage market. Hence the development of Islamic mortgages, referred to as home purchase plans regulated with effect from 6 April 2007.
Islamic mortgages
There are two types of Islamic Mortgage available, ‘Ijara’ and ‘Murabaha’.
Ijara, meaning ‘lease-to-own’, is the more popular of the two. The customer agrees a price for the sale of a house with the vendor in the usual way. However the financier will then purchase the property, taking legal title and agree to sell to the customer at the original purchase price over an agreed period of time. During this period of time, until the property is transferred fully to the ownership of the customer, the financier charges the customer rent.
A Murabaha, or ‘deferred sale finance’ plan differs from an Ijara in that, rather than renting the property to the customer, the financier sells the property on to the customer on the date of completion at a higher price.
The price at which the financier sells the property on to the customer is determined by the value of the property and the number of years over which payment is to be made. The Murabaha method of buying a property falls within the definition of a regulated mortgage contract and has been regulated since October 2004.
Until the law was altered in April 2003, Stamp Duty was charged twice on Islamic mortgages, since the property was technically bought twice – first by the financier and then by the buyer. Since then, more financiers have taken guidance from Islamic scholars to ensure that they comply with Sharia law and have developed their own Ijara and Murahaba plans.
Intermediary role
Your role as intermediary is to determine the attitudes and beliefs of your customer before recommending an appropriate product. Not all Muslims are aware of their options and if you can help them meet their needs and better satisfy their faith, you have done them a great service.
With over 1.6 million Muslims in the UK, the market is good and growing. At a time when the number of mortgage products is declining due to the impact of the US non-conforming market, it makes business sense to achieve the qualifications and obtain the Financial Services Authority’s permission to advise and deal with financiers who provide Ijara and Murabaha plans.
As mentioned by the Prophet Mohammed, ‘actions are by intentions, and one shall only get that which one intended’.
get the daily news delivered to your inbox
download our news ticker
find the latest industry jobs
