ortgages For Muslims

25 Jul 2003 Feature

See also
Recent <http://www.findaproperty.com/storylist.html>
Price trends <http://www.findaproperty.com/storylist0006.html>
Unusual property <http://www.findaproperty.com/storylist0005.html>
Building and development <http://www.findaproperty.com/storylist0003.html>
People <http://www.findaproperty.com/storylist0007.html>
Financial aspects <http://www.findaproperty.com/storylist0002.html>
Local interest <http://www.findaproperty.com/storylist0001.html>
Legal aspects <http://www.findaproperty.com/storylist0004.html>
General interest <http://www.findaproperty.com/storylist0008.html>


        
There are thousands of mortgage products on the market, but prior to last week no high street bank offered one that was acceptable to Britain's 1.8 million Muslims...

Britain's mortgage market, we're often told, is one of the most flexible and competitive in the world.

Whether you're a freelance who wants to make irregular payments or a buyer with a couple of county court judgements to your name, there's probably a product, and a lender, out there ready to do business.

However, if you're a Muslim the situation is rather more complicated.

No Interest
Under Islamic or Shariah law it is forbidden to charge or pay interest, which effectively excludes Muslims from buying property in the usual way.

money <http://www1.findaproperty.com/library/libp2097.jpg> And until recently the Alhi United Bank <http://www.findaproperty.com/cgi-bin/rd.pl?u=www.iibu.co m> (formerly the United Bank of Kuwait) was the only financial Institution offering Shariah-compliant home loans in the UK.

But last week banking giant HSBC <http://www.findaproperty.com/cgi-bin/rd.pl?u=www.hsbc.co .uk/> launched their new Amanah Home Finance product with the backing of the Muslim Council of Britain and the blessing of several world-renowned Islamic scholars.

"Buying your own home is an aspiration for most people, but the special needs of British Muslims have been overlooked by the UK financial services industry," said Noaman Hasan, UK Head of HSBC Amanah Finance.

"We have spent the last 18 months working with the Muslim community, the Treasury, FSA and the Council of Mortgage Lenders, amongst others, to see how we can redress that balance."

Substantial Market
Muslims <http://www1.findaproperty.com/library/libp2095.jpg> HSBC, it need hardly be said, aren't doing this for philanthropic reasons. According to Datamonitor, Islamic finance is a sizeable, but as yet untapped, seam in the heavily mined coal fields of personal finance.

By their calculations, the Islamic sector could be worth around £9.2 billion and has the capacity to grow by 245% between 2002 and 2006. Even their most pessimistic forecast sounds like a good bet: £1.3 billion in gross advances by the end of 2006.

Figures like these have encouraged HSBC, who have already a sizeable Islamic venture in the US, to create products that comply with Shariah law, and the bank is betting that the UK's 350,000 Muslim households will form a solid customer base.

London Central Mosque
London central mosque <http://www1.findaproperty.com/library/libp2100.jpg>
At the moment 70% manage to silence their consciences and buy like the rest of us, but HSBC believes many will choose to switch to their Shariah-compliant mortgage once the product is widely available.

The bank also hopes to pick up customers from the many Muslims who haven't bought a property yet, and on this score the endorsement of Muslim scholars will certainly help their cause.

Iqbal Asaria from Muslim Council of Great Britain <http://www.findaproperty.com/cgi-bin/rd.pl?u=www.mcb.org .uk/> welcomed the
move: "The launch of these Islamic finance products by HSBC is welcome news for many thousands of Muslims who regularly battle with their consciences when it comes to making financial decisions.

"Some are wracked with guilt because they have broken Islamic law. While others' values are beyond question, they are more pragmatic in order to keep a roof over their family's head."

The Lease They Can Do
The HSBC solution to the Shariah prohibition on interest works like this:

*     HSBC buys the property and leases it back to the customer over an
agreed term - typically 25 years.

*     The customer makes monthly payments made up of rent and payments
towards the purchase price. HSBC owns the property until the customer has made their final payment.

*     The customer can arrange for the property to be sold at any time and
the rent rate will be reviewed on 1 July and 1 January every year.

     In Islamic terms, the rent paid to the bank on top of the monthly payments towards the purchase price is not classified as interest; it is seen as a fair payment for use of the property rather than a charge for borrowing money.

     Product Details
     The Alhi United Bank, who market their products through the West Bromwich Building Society <http://www.findaproperty.com/cgi-bin/rd.pl?u=www.westbro m.co.uk> and the financial advisor 1st Ethical <http://www.findaproperty.com/cgi-bin/rd.pl?u=www.1stethi cal.co.uk> , provide a similar product but HSBC say they have the competitive edge because they are a major high street player.

      pound <http://www1.findaproperty.com/library/libp1907.jpg> "They don't have the same reach as us," says Sanjay Mistry of HSBC, "so we think our product will be more competitive.

     "We calculate that a loan of £80k over 25 years will cost £464.51 month compared to the Alhi monthly payment of £505.00. Over the course of the loan that's a saving of £12,147."

     HSBC demand a minimum 10%-30% deposit, depending on the amount of financing required (Ahli demand at least 20%). The minimum term is seven years, the maximum 30 years.

     They will lend to employed, self-employed and retired people and to UK and eligible Foreign Nationals who have appropriate residential status.

     The product is currently available at three branches: Market Street, Bradford, Queen Street, Cardiff, and Whitechapel, London. By the end of September it will be in 25 branches. For more information call 0800 5877 786.

     The buying process is structured in the following way:

*     As with traditional home buying, a customer picks a property he/she
wants to buy and negotiates the price with the seller. Alternatively, he/she may wish to refinance their existing property.

*     The customer applies to HSBC for Amanah Home Finance, and HSBC will
write back to confirm if the application has been successful.

*     The customer's solicitor or other legal advisor will be sent the
legal documents explaining the details of the scheme.

*     If the customer wants to continue, he/she will be asked to sign an
Amanah Home Finance letter. By doing so he /she will accept the finance.

*  &n