What is an Islamic Mortgage?
The main principle behind Islamic mortgages or finance is that any form of interest is forbidden.
Under Sharia Islamic law, wealth should only be generated through legitimate trade and investments in assets, and not from making money from money; therefore the charging of interest is not allowed.
Under the Islamic financial system, the finance model works on the basis of sharing risk, and they agree to share the risk and profits between the bank and the customer.
The Islamic mortgages work by for example the bank buying a 85% share of a house while the customer buys 15%. The customer or home buyer borrows nothing from the bank, but pays rent on the property, with some of the money buying out the banks share, so the property gradually becomes the customers.
At present however in Britain there is a slight problem in that because the bank takes ownership of the property before the homebuyer, two sets of stamp duty are paid.
A few high street lenders now supply Sharia compliant finance, in the hope of attracting business from Britain’s two million Muslims.
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