Islamic Finance
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It is forbidden under Sharia Law to pay or receive interest. For this reason, it has typically been difficult for British Muslims to purchase or re-mortgage property. In 2002, the UK government made Sharia compliant mortgages available in the UK, leading many large banks to begin offering this new form of finance.
If you are interested in purchasing or re-mortgaging a property through Sharia compliant finance, it is important to find a Solicitor with an in-depth knowledge of these products. Islamic conveyancing is a niche and complex area of Property Law and requires the input of a Solicitor experienced in working with Sharia compliant institutions and products.
How Does Islamic Finance Work?
To be Sharia compliant, a loan must be a fair agreement between borrower and lender that allows the lender to make money without any interest being paid by the borrower. In addition, the bank or financial institution lending the money must not have other clients involved in impermissible activities such as gambling, distributing alcohol or selling non-halal meats.
The Islamic mortgages offered by Sharia compliant banks generally take one of three forms:
Murabaha
Similar to a rent-to-own agreement, under a Murabaha agreement a bank will purchase a property on your behalf and then sell it to you at a higher price and on an installment basis. Under this agreement, the property is immediately registered to you, but the downside of a Murabaha agreement is that most banks will require a large deposit upfront, sometimes as much as 20%.
Ijara
If you are not in the position to afford the deposit required by a Murabaha agreement, the Ijara may be a suitable option. In this arrangement, the bank purchases the property and grants you a lease. You pay monthly contributions to the cost of the property, and when you have paid back the total cost to the bank, the legal title will be transferred to you.
Musharakah
The most popular form of Islamic finance is a Musharakah agreement. Under this arrangement, the bank purchases the property and you pay a single monthly payment that covers the cost of renting and also buys you a proportion of the house. Lender and borrower continue to share ownership of the house until the borrower has paid the full purchase price, at which point the deed will be transferred. This arrangement means that both parties share in any profit earned, but also equally risk losing money on the property.
What We Can Offer You
Islamic conveyancing is a rapidly developing but still relatively new area of Property Law. Correctly meeting the standards necessary to be Sharia compliant can be a complicated process and requires experienced Solicitors with a strong knowledge of Islamic finance and good relationships with the institutions that offer these products.
Our Head of the Property Department, Shakeel Mir, has extensive experience in this aspect of Property Law and has assisted many Muslim clients with purchasing or re-mortgaging a property. To arrange a free no obligation discussion with Shakeel get in touch today.
