On 6 April 2007, people taking out Islamic / Halal mortgages gained official protection from the Financial Services Authority (FSA). The mortgage conduct of business (MCOB) rules now apply to regulated mortgage contracts including Home Purchase Plans (Islamic Mortgages).
This new regulation builds on the FSA's financial inclusion agenda, extending protection to consumers interested in financing a home purchase in a way acceptable under Islamic law. The FSA's regulation seeks to ensure that:
- firms offering these products are fit and proper and appropriately resourced with staff competent to undertake this business;
- consumers get clear, concise and consistent information about a firm's services and products on offer (including appropriate risk warnings) so they can make informed choices;
- consumers get good quality advice and are sold suitable products which take account of their circumstances and needs; and
- if things go wrong, consumers are able to obtain redress, if appropriate.
Nusrat Janjua, marketing director of IslamicMortgages.co.uk, said: "Islamic mortgages have been one of the most widely used products in the rapidly growing Islamic financial services market over the last five years. Commitment from government and Islamic financial institutions have driven through tax and regulatory reforms enabling the market to flourish; the UK now leads Europe in develpments of Islamic finance products.
"The difference in the delivery, wider acceptability and competiveness of Islamic mortgages in the UK is increasing. We envisage a greater range of products being introduced in the future including Council Right to Buy, shared ownered and 100 per cent mortgages; all of which will assist in building consumer confidence in Islamic mortgages. We are already seing a greater interest in the market from IFA's, therefore, offering Islamic mortgages alongside mainstream conventional products is ineveitable."
The value of the Islamic mortgage sector in the UK is predicted to increase from £40 million in 2002 to an anticipated £1.4 billion by 2009 (according to official figures). This projected increase has been largely fuelled by rising demand for property by the Muslim populous; particularly in high density Muslim areas such as London, Leicester and Birmingham. One of the biggest growth areas has been 'Islamic remortgaging': the switching of a conventional mortgage for an Islamic mortgage.
High property price inflation is already occurring in these cities; coupled with the growth of Muslim property investors and portfolio property builders, demand for property is growing at an upward rate.
The knock on effect envisaged is that the availability of Islamic mortgages would make mortgage debt levels among Muslim families run closer to those of the rest of the UK population.
As Islamic mortgages become more competitive with the conventional market and the availability of a range products to meet individual needs become apparent, we will see the wider non-Muslim community looking to find a real alternative to conventional market products.
The concept of no-interest bearing mortgages is very attractive, particularly in a climate of uncertainty.
Nevertheless, some commentators have expressed concern that if economic conditions in the UK deteriorate, the Islamic mortgage market would become as exposed as the conventional mortgage market, if not more so, because Islamic mortgage holders would have fewer options to 'borrow their way out of trouble'. There is also still widespread concern amongst some quarters of the Muslim Community as to the true nature and shariah compliance of the Islamic products being introduced in the UK; sceptism still exists amongst certain sections of UK Muslim consumer.
