Sharia’a compliant mortgages prohibit ‘riba’ or interest on the financing of a property purchase. Though there are several variations across the market, they work in the similar ways.
- Residential
- Commercial
- Bridging
- Development
Case Study Example
The Shard Development
The Shard, London Bridge, SE1
Case Study Example
Development of Former Hotel
7-12 Leinster Square, London W2
Ijara: this is the most common and the bank buys the property on your behalf and becomes the legal owner. Your monthly payments function more like rent, with a portion going towards buying out the property owner’s stake. At the end of the term you should either have bought the property back, or have an outstanding sum left to settle before you become the legal owner.
Diminishing Musharaka: This is is a joint purchase agreement between the customer and the bank. The customer pays off the bank’s share in monthly instalments, so the customer’s ownership share grows as the bank’s shrinks.
Morabaha: the bank buys the property and immediately sells it to the client at a higher price. This is then paid off over an agreed term (the life of the mortgage). The repayments are then fixed over the agreed term.