There are two options available to you that correspond with Muslim law:

• The Murabaha (Deferred sale finance) Mortgage
• The Ijara (lease to own) Mortgage

The Murabaha Mortgage:

This is only really an option for individuals/families who have a fair amount of capital behind them, because it is a condition of this Mortgage package that you are expected to pay (circa.) 20% of your home’s value, on the day of purchase. However from that day the house will be registered as your own. You may pay off any debt that is outstanding on your home at any point. This package offers a fixed repayment period that is agreed between you and your lender, any a monthly repayment amount that is fixed for the term of your mortgage.

So how does the Murabaha Mortgage work?; When you find the house that you wish to buy, you arrange a sale price with the vendor as normal, however the bank pays the purchase price, then immediately sells the house to you at a higher price (the higher price is determined by the original price of the property, and the repayment period that you will have agreed with the lender), minus the percentage you pay as deposit.

The Ijara Mortgage:

This is a slightly more popular choice of mortgage, as you do not need a large amount of capital behind you to set up this mortgage, it is also slightly more flexible than its counterpart. An extra benefit to this type of mortgage is that it can even be taken out to replace an existing interest mortgage. The amount you pay each month is usually fixed yearly. The outstanding balance can be paid off at any time (usually) without incurring any penalties.

So how does the Ijara Mortgage work?; As with the Murabaha mortgage, you find a property that you wish to buy, and agree a purchase price with the vendor, the difference is that; your lender will then purchase, and gain ownership of the property. You will enter into a lease agreement with the lender. Each month you will be expected to pay rent to your lender and a contribution towards the purchase of your property.

Conventional mortgage loans are interest-bearing, in conflict with Islamic Principles, and therefore Haram (prohibited) by Shariah. This has presented difficulties for the finance industry and created barriers to homeownership for UK Muslims.

With the introduction of Halal (permissible) mortgages in the UK finance market, dedicated Muslims can now have a choice. They can purchase homes or refinance existing mortgages using faith-based options. Halal mortgages are structured differently than conventional interest bearing mortgages, so they are Shariah compliant and are inline with Islamic principles.

The two most common forms of Shariah compliant home purchase finance are Ijara and Musharaka. According to practitioners of Islamic banking and scholars, these methods are the most suitable means for purchasing property in the UK. Both Ijara and Musharaka are long established Islamic financing principles.

Ijara is based on a “lease-to-own” concept and is interest-free making it compliant with the Riba provision of Shariah. In an Ijara based transaction, you identify the property you wish to buy and agree to the purchase price with the seller. The bank enters into a “Promise to Purchase” agreement with you for an amount equal to the original purchase price and purchases the property. At the same time, you enter into a lease agreement with the bank which details your rights to occupy the property. You make monthly payments to the bank and a portion of the payment is applied toward the purchase of the property with the remainder paid to the bank as rent. Once the purchase price is paid in full, rental payments cease and ownership of the property is transferred to you.

Musharaka is based on a “shared ownership” concept. In a Musharaka based mortgage transaction, you identify the property you wish to buy and agree to a purchase price with the seller. The bank buys the property and leases it to you (similiar to Ijara). Your first payment is your initial contribution (deposit), in a Musharaka arrangement this amount will become your initial `Share` of the property. As the mortgage term progresses, the capital portion of your monthly repayment to the bank will add to your percentage share of the property. When you make your last payment at the end of the mortgage term, you would have purchased 100% share of your home.

Using the Islamic Finance concepts of Ijara or Musharaka, you now have a choice of faith-based mortgage options enabling you to purchase a home or refinance a conventional mortgage through a Halal mortgage which is Riba free and; therefore, Shariah compliant