Sharia Mortgages - pros and cons?

Sarah920

Hey y'all,

was reading about HSBC's Amanah mortgages and looked up sharia here, but for some reason most of the previous threads have descended into accusations of racism and all the useful information has been buried.

So, could someone please explain what the difference between paying a conventional mortgage and a sharia mortgage are and what the advantages of both over the other would be? I've been reading up on it for a while, but my financial understanding isn't great. Thanks.

kamaran

V suimplistically - Shariah mortgages are marketed toward Muslims and based on the principle that Interest is not allowed, therefore you are charged a regular fee instead of interest on your mortgage.

The lender should only invest in 'Halal' companies - ie those that confirm Shariah rules - non gambling, alcohol.

Joe_Bloggs

There is an article on usary here. This describes various philosophical aspects to the charges associated with the lending of money.
I do not wish to trample on the beliefs of others so I will not comment on the conflicts within religion and finance at this time.
PS Santa Claus does not exist.

shadowspy24

I'm not a 100% sure but i think you buy on the basis that you own part of the house and the bank owns the other part. You then pay the rent for the part you don't own and an extra amount on top to buy a slight amount of the house back from the bank until you own the whole house.

feisty1

Generally, mortgage providers operate by attracting deposits from customers (and paying them interest) and by borrowing money at a lower rate than they are lending it at. Few mortgage providers (including Islamic mortgage providers) can obtain sufficient funds to maintain their level of mortgage lending without going to the money market on occasions. The implication is that even though the financial product that an Islamic mortgage provider offers to a Muslim customer is halal (permissible), the source of this finance is likely to be the mainstream money market where interest is charged
.

Aside from the theological arguments as to whether this state of affairs is acceptable, fluctuations in interest rates could have an adverse effect on the Islamic mortgage market. Adjusting monthly repayments to take account of increases in interest rates would be difficult to justify to Muslim customers and could result in Islamic mortgage providers' margins being squeezed significantly

Summary:
Islamic mortgage providers consult Islamic scholars to ensure that their mortgage products are Shariah compliant;
Most financial institutions that provide Islamic mortgages also offer interest bearing mortgages;
Islamic mortgage providers borrow money in the open market to fund Islamic mortgages.

http://www.fancyamortgage.co.uk/IslamicMortgages/ShariahLaw.asp

silvercar

With asharai mortgage you pay the deposit, giving you a share of the property and rent the remaining amount. The rental is set at a level that equates with a repayment mortgage. When the rental period end (25 yrs) you then take ownership of your home.

It is all set up to be comparable to non-sharai mortgages but complies with muslim rules. There was a CGT problem in that the property isn't transferred to the buyers ownership until the end of the term. There were plans for an act of parliament to sort it; not sure if that happened.

There would also be problems if you wanted a secured loan on the property or wanted to declare yourself a "home-owner" for any other reason, as you are not registered as the home owner til the end of the term.

Generally you won't find the deals as competitive as a non-compliant mortgage as there is little competition to keep rates low.

Alan_Cross

A 'sharia mortgage' is a way for islam to pretend that it isn't part of the modern, financial world just like it pretends that it isn't part of the modern, scientific world ... but that doesn't stop your average imam from using such devil's tools as mobiles and the internet, I notice...

nmiah786

Alan_Cross wrote: »

A 'sharia mortgage' is a way for islam to pretend that it isn't part of the modern, financial world just like it pretends that it isn't part of the modern, scientific world ... but that doesn't stop your average imam from using such devil's tools as mobiles and the internet, I notice...

Wow. Your post is soo insightful, didn't realise you knew soo much about Islam and Islamic finance!

morg_monster

alan are you getting confused between Islamic and Amish?!

bfgun

Don`t care about any religion aspects.

Is it cheaper? If so, Im interested;)

barnaby-bear

silvercar wrote: »

With asharai mortgage you pay the deposit, giving you a share of the property and rent the remaining amount. The rental is set at a level that equates with a repayment mortgage. When the rental period end (25 yrs) you then take ownership of your home.

It is all set up to be comparable to non-sharai mortgages but complies with muslim rules. There was a CGT problem in that the property isn't transferred to the buyers ownership until the end of the term. There were plans for an act of parliament to sort it; not sure if that happened.

There would also be problems if you wanted a secured loan on the property or wanted to declare yourself a "home-owner" for any other reason, as you are not registered as the home owner til the end of the term.

Generally you won't find the deals as competitive as a non-compliant mortgage as there is little competition to keep rates low.

There were bizarre consequences with the houses struck by the Birmingham cyclone thing - a lot were owned this way