What are Islamic Mortgages, and how do they work?
Islamic finance principles prohibit Riba - the unethical practice of earning interest and making from money alone. Instead, Islam promotes financial fairness and transparency for overall social benefit.
Because of this, Islamic mortgages are not actually mortgages at all - instead they are Home Purchase Plans (HPPs) that allow individuals to access home financing without paying any interest. StrideUp's HPPs are an alternative to conventional mortgages, adhering to Islamic finance's ethical standards and guiding you towards righteous financial decisions.
Our HPP is based on partnership. We purchase your home together and you make monthly payments made up of rent and equity acquisition (gradually buying a greater share in the property). This straightforward plan avoids Riba, providing a clearer path to homeownership. Over time, your property ownership increases, allowing you to build your investment securely and in line with your beliefs. At the end of the term you will own the property outright, and your monthly payments will end.
An example of a StrideUp HPP is as follows:
In this instance, the customer provides a 15% deposit, StrideUp provides the remaining 85% and both parties own parts of the property based on how much they have each contributed upfront.
The customer makes monthly payments made up of two parts: rent (on the portion of the property they do not yet own) and acquisition (buying StrideUp’s share of the property). This continues until the end of the agreed term, at which point the customer has acquired the entirety of StrideUp’s portion and owns 100% of the property.
This co-ownership approach, called Musharaka, is highly regarded among Islamic finance scholars as an ideal structure. This said, other Islamic home finance structures do exist.
What are the different types of Islamic Mortgages?
There are three main structures for Islamic home finance that are most commonly used. Whilst Diminishing Musharaka is the most highly regarded for residential properties, it is still good to know about the rest of the industry!
Let's explore the different types of Islamic home finance available:
Diminishing Musharaka with an Ijara:
This dual approach is the preferred choice for Islamic Home Purchase Plans (HPPs) in the UK. In this partnership, you and StrideUp share the property's ownership, alongside a leasing agreement.
Through monthly acquisition payments, you progressively buy-out StrideUp's share (Musharaka) while also covering the rent (Ijara) on the portion you do not yet own, allowing for a seamless transition to full ownership.
Murabaha:
In this arrangement, the finance provider purchases the property and sells it to you at a higher price, which you pay back in monthly installments. This markup covers the finance provider's profit, making it a transparent way to finance your property purchase. Murabaha is more commonly used for commercial properties such as business premises.
Ijara:
Similar to leasing, an Ijara contract involves making monthly rental payments without acquiring equity in the property. It's akin to an interest-only mortgage but within the bounds of Islamic finance, making it a flexible option for those not looking to immediately grow their ownership in the property.
Customers will make monthly rental payments, but do not increase their ownership of the property over time.
Do UK banks offer Islamic Mortgages?
As you may have noticed, many traditional banks, including well-known names like HSBC and Lloyds, have gradually stopped offering Sharia-compliant mortgage solutions. This shift has left a noticeable void for British Muslims seeking ethical and compliant home financing options.
Despite this, StrideUp continues to offer Islamic Mortgage equivalents - HPPs. We're a UK-based provider dedicated to offering Home Purchase Plans, designed with the needs and values of the British Muslim community in mind.
We're committed to providing a straightforward, transparent path to homeownership that aligns with Islamic financing principles. Our mission is to make sure you have access to home financing that fits your ethical standards and helps you achieve your homeownership dreams!
Are Islamic Mortgages Shariah-compliant?
StrideUp is proud to offer a Home Purchase Plan (HPP) that aligns perfectly with Islamic values. We've teamed up with Amanah Advisors, renowned experts in Shariah compliance, to ensure our HPP meets the highest standards of Islamic finance principles. Our commitment means you can pursue homeownership without compromising your beliefs.
Our partnership with Amanah Advisors involves continuous collaboration, placing Shariah compliance at the heart of what we do. This ensures that as our products evolve they remain in strict adherence to Islamic laws, offering you peace of mind with every step towards owning a home.
Furthermore, StrideUp and its offerings are regulated by the Financial Conduct Authority (FCA). This regulation provides an added layer of security, offering you the same protection as those opting for traditional mortgages.
With StrideUp, you’re not just choosing a home; you're choosing a path that respects your values every step of the way.
How much do I need to deposit for an Islamic Mortgage?
StrideUp's Home Purchase Plans (HPPs) require a 10% minimum deposit to get started on your path to homeownership. This initial deposit can be funded entirely by your savings, or it can be a generous gift from family or friends. With a 10% deposit, you'll secure 90% financing from us, known as 90% Finance-to-Value (FTV).
What Additional Costs Are Involved?
When exploring Shariah-compliant finance options and mortgages you can expect to come across three standard fees which are widely recognised across the industry:
Valuation Fees: These fees, typically between £200 and £700, vary depending on your property’s purchase price. They cover the evaluation of your property’s market value, essential for accurately determining the finance-to-value ratio and, consequently, your rental rate.
Solicitors/Legal Fees: The cost of legal services can vary based on the solicitors you choose. Opting for a solicitor from StrideUp's recommended panel will qualify you for cash back.
Product Fee: StrideUp charges a fixed product fee, payable upfront or incorporated into your financing for gradual payment over time which can offer flexibility in managing upfront costs.
These fees are standard in the mortgage industry, including Islamic mortgages.
Starting Your Journey with StrideUp
Unlocking Your Home Purchase Plan
Curious about starting with StrideUp? Your path to financing your dream home begins with the following keys steps:
Step One: The Decision in Principle (DIP)
Kick off your journey by filling out the DIP. It's a straightforward form where you'll provide some basic details about yourself and your dream property. This step is crucial to understanding how much finance you could be eligible for.
Step Two: Expert Advice
After your DIP, you'll have the opportunity for a free call with an Advisor. Our experts are here to guide you through the HPP process, offering guidance and answering any questions to ensure you're fully informed.
Ready to Begin?
StrideUp isn't just your finance provider; we're here to help you navigate the path to your property aspirations. Our Advisors are to clarify every part of the process for you. Let's embark on this journey together!
Any Questions?
Don't hesitate to connect with us! Whether you prefer sending an email to hello@strideup.co or chatting with us via web chat, we're here to answer all your queries.