Shariah Compliant Mortgages


We’re determined to find the right financial solution for all our clients from every background, culture, or faith. 

The principles of Sharia are centred on the fact that money shouldn’t have value in itself, and that any wealth generation should benefit the community as a whole, rather than just one person. This means any financial agreements have to adhere to a set of conditions, as well as being totally transparent and sharing risk and reward in a fair manner.

Any financial agreements can’t be used to support trades that go against Sharia law, including alcohol, tobacco, gambling, or arms.

Paying or receiving interest – making money from money – is forbidden. Instead, money needs to be used for good, generating profit supported by genuine trade or business activities.

A fundamental Sharia principle is the prohibition of riba. Riba refers to interest charged on loans or deposits, which is forbidden. Instead, Islamic finance agreements include workarounds to avoid charging interest.

Under Sharia law, interest cannot be charged or paid on loans or mortgages. A sharia-compliant mortgage is a finance solution developed to avoid the buyer paying interest on a property. Rather than interest rates, Islamic banks will deal with ‘expected profit rates’.

Sharia-compliant finance is available with many banks and lenders – not just specifically Islamic banks. Although initially developed for muslims, this finance type has become increasingly popular with non-muslims, and is also known as ‘ethical lending’. For example, the more ethical conditions also attract those of the Catholic and Jewish faith, as these religions feature a no-interest policy too. 

Sharia-compliant finance and home purchase plans (HPPs) are considered a more ethical and competitive way to purchase a home, and are therefore becoming more popular among both Muslim and non-Muslim customers.

Instead of you purchasing a property in your name, the bank or lender buys it on your behalf, and your monthly payments function more like rent. A portion of that money goes towards buying out the bank’s stake. The bank does not charge interest, as this is not allowed in Islamic finance.

For sharia-compliant finance, early repayment charges (ERC) – which are usually charged if you want to pay off the whole amount and end the agreement early – are not applicable, even if you’re in the middle of a fixed term agreement. This can be an attractive solution if your short term plans are uncertain, for example if you may need to sell in the near future. 

  • – Home Purchase Plan (HPP)
  • – Buy-to-let Purchase Plan (BTLPP)
  • – Commercial Property Finance

With this type of sharia-compliant agreement, both you and the bank or lender pay towards the purchase or refinance of your property.

Part of your monthly repayments then serve as rent for the duration of the agreement, alongside acquisition instalments. Each acquisition instalment tops up your share of the property, diminishing the bank’s share in the process. As this happens, the rent amount reduces.

Once you have paid off the entire property amount to the bank, ownership is then transferred into your name.

Similar to the previous agreement, with this type of sharia-compliant agreement, both you and the bank or lender pay towards the purchase or refinance of your property.

The difference is that, throughout the agreement, your monthly payments to the bank serve as rent only. This means your share in the property remain consistent throughout. The rent is calculated in line with how much of your property the bank owns.  

If you want to purchase more of the bank’s share, you can do this either by increasing your contribution on your rent review date; or you can buy out the whole amount at any point during the term.

At the end of the agreement, once you have purchased the bank’s entire share, ownership is transferred into your name.

With this agreement, it’s up to you to ensure your finances are in order should you need to pay a large lump sum to cover the bank’s share of the property by the end of the term.

A Murabaha agreement is a no-interest purchase plan. The bank buys the property and sells it to you at an agreed price, which you pay off in monthly instalments. This can incur higher costs, as by the end of the agreement, the property will likely have increased in value. These agreements are more typically used for commercial properties.

Generally, you’ll need a minimum of 10%- 20% deposit to qualify. As there are different options available with varying terms, you should consult with a broker to determine the best solution for you.

Keep in mind you’ll need additional budget for surveys, building insurance, and legal costs. Since 2002, UK law has instructed that stamp duty is only payable on sharia-compliant finance once at the beginning of the agreement.

For high-value loans, high street lenders may be unable to give you the terms you need. This is where a brokerage comes in: we have a network of providers experienced in Islamic finance, and can negotiate complex mortgages that work for you. Remortgaging can also be a difficult process, but is one we can certainly assist with.

It’s worth remembering that sharia-compliant finance can be more expensive comparable to challenger banks than other mortgages because the bank or lender has to cover higher admin costs.

If you’re a landlord looking for a sharia-compliant finance to help expand your portfolio, we can help find the best deal for you. We also have experience in helping portfolio landlords under limited companies or special purpose vehicles (SPVs) secure sharia-compliant finance, so whatever your circumstances, we are able to assist. 

Some providers and lenders will offer a buy-to-let purchase plan (BTLPP). This is similar to an HPP, except it is set up to be an ethical alternative to a standard buy-to-let mortgage.

In addition, there are no early payment charges on a BTLPP either (excluding legal charges).

Much like residential finance, early repayment charges (ERC) are also not applicable for BTLPPs, even if you’re in the middle of a fixed term agreement. Again, this can be a very attractive deal for landlords facing the uncertainties of expanding their portfolio. 

It’s worth noting that for this type of finance, specialist solicitors will be needed.

Thanks to our experience building trusted relationships, we have access to a number of specialist lenders operating in Islamic finance. We are dedicated to putting your needs at the very centre of what we do, and are able to flex to any faith or culture-related circumstances. We can negotiate the best rates depending on your situation, and have even helped many non-Muslim clients to secure ethical mortgages.