{"id":926,"date":"2010-06-11T20:18:08","date_gmt":"2010-06-11T14:48:08","guid":{"rendered":"http:\/\/mohamediqbalp.wordpress.com\/2010\/06\/11\/islamic-mortgages-and-why-they%e2%80%99re-not-just-for-muslims\/"},"modified":"2010-06-11T20:18:08","modified_gmt":"2010-06-11T14:48:08","slug":"islamic-mortgages-and-why-theyre-not-just-for-muslims","status":"publish","type":"post","link":"https:\/\/venusimportexport.com\/wordpress\/index.php\/2010\/06\/11\/islamic-mortgages-and-why-theyre-not-just-for-muslims\/","title":{"rendered":"Islamic Mortgages and Why They\u2019re Not Just for Muslims"},"content":{"rendered":"

Islamic Mortgages and Why They\u2019re Not Just for
\nMuslims<\/a><\/h2>\n

June 10th, 2010 HIP-Consultant.co.uk Posted
\nin Legal<\/a>, Property
\n Conveyancing<\/a> | 1 Comment \u00bb<\/a> <\/p>\n

<\/p>\n

\t\t\t\t<\/p>\n

Islamic Mortgages and not just for Muslims which may come as a
\nsuprise for some. However, an Islamic mortgage does have its
\ndifferences.
\n<\/span><\/p>\n

What is an Islamic Mortgage?<\/h3>\n

According to Islam, making money from money is \u201cusury\u201d and is not
\npermitted. This includes receiving or paying interest (it is wrong to
\nassist another in making money from money). \"prayer<\/a>This creates an obvious
\nproblem for a muslim who wishes to own his own property. Buying outright
\n with cash will not be an option open to the vast majority and a
\ntraditional interest based mortgage loan cannot be obtained with
\ncompromising his religious beliefs. Islamic mortgages (also called
\nShariah or Halal mortgages) were introduced to combat this problem and
\nprovide a method of obtaining finance from a lending institution without
\n paying interest. Whilst the the main purpose of this method of
\nborrowing is to allow muslims to maintain their beliefs while leading
\nnormal lives when living in non-Islamic countries, it has other
\nadvantages which have nothing to do with religion.<\/p>\n

How Do Banks Make a Profit?<\/h3>\n

Naturally banks still want to make a profit on the money they lend
\nand they do this by either buying the property from the seller at the
\nnormal agreed price and selling it on the borrower for a higher price or
\n by buying the property and renting it to the borrower during the
\ncontinuance of the term.<\/p>\n

How Do Islamic Mortgages Work?<\/h3>\n

There are two main types of Islamic Mortgage, Murabaha and Ijara:<\/p>\n

Murabaha<\/h4>\n

With this arrangement the purchaser finds a property and agrees a
\npurchase price with the seller in the usual way.The bank then purchases
\nthe property on behalf of the buyer and immediately sells it to the
\nbuyer at a higher price. A percentage of the purchase price (the
\ndeposit) is paid to the bank immediately and the remainder is paid in
\nmonthly instalments over the term. The instalments are fixed over the
\nlife of the term. The maximum amount of the purchase price the bank will
\n agree to defer will be 80%, in other words a minimum 20% deposit will
\nbe required to obtain this type of mortgage so it is only suitable for
\nthose buyer who have substantial capital to invest.<\/p>\n

Ijara<\/h4>\n

Again, you will find a property and agree a purchase price and the
\nbank will buy the property, however with this arrangement the property
\nwill be registered to the bank who will grant a lease to you and give
\nyou a \u201cpromise to sell\u201d.\n<\/p>\n

\n

google_protectAndRun(“ads_core.google_render_ad”, google_handleError, google_render_ad);<\/ins><\/ins><\/div>\n

The term of the lease will be equal to the term of the mortgage. You
\nwill make monthly payments which compromise a rent for the use of the
\nbank\u2019s share of the property and a payment to acquire part of the bank\u2019s
\n share. The rent payments will usually be reviewed each year, just as
\nrent on an assured shorthold tenancy might be. At the end of the term
\nyou will have acquired all of the bank\u2019s share and the bank will be
\nrequired to make good on its promise to sell by transferring the
\nfreehold title to you. The lease term will have come to an end and it
\nwill be extinguished. The advantage of this arrangement over Murabaha is
\n that a smaller deposit will be acceptable, perhaps 10%.<\/p>\n

What if I Have an Islamic Mortgage and Want to Sell Before the End
\nof the Term?<\/h3>\n

There is no reason that you cannot sell before the end of the term
\nand repay the borrowing in full, and this can usually be done without
\npenalty. The bank\u2019s promise to sell is simply enforced earlier. You
\nwould only pay the bank the amount originally borrowed less any payments
\n already made, so that the bank does not get a share of any increase in
\nvalue.<\/p>\n

Which Banks Provide Islamic Mortgages?<\/h3>\n

There are a number of banks which provide Islamic mortgage products,
\nincluding Bristol & West, HSBC and the Islamic Bank of Britain among
\n others.<\/p>\n

Can I Get Repossessed if I Have an Islamic Mortgage?<\/h3>\n

Unfortunately yes, you always at risk of repossession if you purchase
\n a property with the benefit of a mortgage and fail to keep up
\nrepayments.<\/p>\n

I\u2019ve Heard I Might Have to Pay Two Lots of Stamp Duty?<\/h3>\n

It used to be the case that with a Islamic mortgage, you had to pay
\nstamp duty once on the original purchase and again at the end of the
\nmortgage term when the bank transferred the property to you, but this
\nwas remedied in the Finance Act 2003 and is no longer the case.<\/p>\n

I\u2019m Not a Muslim, So Why Would I Get an Islamic Mortgage?<\/h3>\n

One advantage of the Murabaha type of mortgage is that the payments
\nare fixed throughout the life of the term. This means you don\u2019t have to
\nworry about your payments increasing to a level you can\u2019t afford if
\nthere is a sharp rise in interest rates, as would happen with a
\nconventional mortgage. Obviously the disadvantage is that you would not
\nbenefit from any decrease in interest rates.<\/p>\n

The monthly payments on this type of mortgage will be calculated
\nbased on the interest rate prevailing at the time so while rates are
\nlow, although initially the payments will be higher than a traditional
\nmortgage (the bank will set the payments higher because they know they
\ncannot be changed), over the life of the mortgage as interest rates but
\nyour payments don\u2019t, you may well end up better off.<\/p>\n

With the Ijara type, payments are reviewed annually and will increase
\n and decrease in line with interest rates.<\/p>\n

Photo by dynamosquito<\/a><\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Islamic Mortgages and Why They\u2019re Not Just for Muslims June 10th, 2010 HIP-Consultant.co.uk Posted in Legal, Property Conveyancing | 1 Comment \u00bb Islamic Mortgages and not just for Muslims which may come as a suprise for some. However, an Islamic mortgage does have its differences. What is an Islamic Mortgage? According to Islam, making money…
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