islamic mortgages

dawn_b

Has anyone ever looked at Islamic mortgages? What sort of deal do you get? Is it maybe a way forward if house prices were to drop and interest rates rise?

D

homer_j_3

do you understand how islamic mortgages work? I dont see how they are of a benefit in the above situation - maybe I am wrong as I have never arranged one but from my undertsanding there are 2 types of islamic mortgages available -

Murabaha mortgage - this is where you agree a price with a seller and the bank pays this price then immediately sells to you for a higher price dependent on the term that you want it over. You normally need about 20% deposit for these and of course the price the lender sells it to you will be for the same price you would have paid with interest ontop so its just the "wording" and "the spin" put on these products to satisfy the laws of islam. I do not see how this would benefit other than the fact that the deposit might be less if the value is less albeit still the same %. If interest rates are higher then you will end up paying for this in the inflated price the lender sells to you.

Ijara mortgage

This is where the lender owns the house and you pay rent and a contribution to pay the capital off the purchase price. Once again the rent aspect is clearly a "spin" in wording for interest to satisfy the laws of islam. You do not need to pay as much of a deposit on this and the payments are usually fixed for the lifetime of the loan but once again, I dont see how this benefits in a climate you describe.

theGrinch

I sold to someone requiring an islamic mortgage and it was a very slow process. I wouldnt do so again.

Zziggi

I'm a muslim but i fully agree that there is just a spin on the wording so that technically interest payments don't occur. For all intents and purposes you are paying interest albeit by another name.

Personally for muslims I think you need to rent & try to save like mad to buy a house outright (practically impossible) OR just accept that mortgages and interest payments are a fact of life in the UK and decide whether avoidance of interest is of greater importance than providing a suitable & stable roof over your family's head.

As for non-muslims - i can't see how islamic mortgages would be of any advantage at all, especially given the rarity of them and the complexity. I'd give them a wide berth.

purply

Got this from the bbc website:

"Mortgages from British financial institutions are interest-based, something which does not comply with Islamic Sharia law.

Islam has no objection to wealth creation, but says it must be based on partnerships and fairness where risks and rewards are shared.

In the eyes of Islamic scholars, interest is an excess payment from one party to another which is unrelated to the value of the goods traded.

Mortgage interest is therefore unacceptable because one party gains at the other's expense without any regard to the price paid for the home".

Revenge_of_the_Red_Devil

I'm a Muslim, and the religious leader, Ayatullah Seestani, the one living in Iraq who I follow, has said that its alright if you live in a country where interest is both taken and given out. I mean, it's impossible to save 250k to buy a decent house - wherdya live in the mean time? However, if I were to lend someone 2k, I couldn't ask for more back. If they gave it to me tho, I'm allowed to accept it. Thats my understanding anyway.

Did you know in Iran, banks do not give or recieve interest? They have thousands of prize draws tho, to attract you to their bank.

bud-miser

I think I understand the Islamic objections to moneylending but, for the life of me, can't see why it must necessarily viewed as an unequal relationship. Surely, the lender is:

A. Taking a risk, if perhaps calculated, in lending the money in the first place.

B. Helping the borrower to achieve something which might otherwise very well be impossible.

The borrower, for his OR HER part, compensates the lender for A and B by the payment of interest.

Surely, this is a relationship of equals and would only become otherwise should one side or the other default unfairly, such as the demanding of excessive interest or the unjustifiable refusal to pay. It is a gain-gain situation where NEITHER party can be thought of as 'exploited'.

Why need it be seen as a scenario for the intrusion of Evil into the affairs of Men? This strikes me as paranoid and, in effect, a demand for the whole of society to return to the days of exchange/barter and people riding to market, whipping their mule as they went.

Sorry, you don't get computers, mobile phones and MRI scanners that way - or even, dare I suggest it, such evils as clean water and an agricultural surplus. People need an incentive. Always have done. Always will do.

fezster

Perhaps the bank is taking a risk on the borrower defaulting, but this is minimised massively because they are able to take posession of the property and are free to sell it to recoup any losses made.

And in any case, the seller would still have to make up any difference in the amount borrowed and the amount made back by auctioning the property. The seller would have to completely ruin his / her chances of borrowing any money or even getting a decent job for the next 5 years (or however long it is), by declaring themselves bankrupt for the bank to lose out on that front.

I don't think there can be any argument that financial institutions make ludicrous amounts of profit through interest, and all because they are in the fortunate position of having lots of money to start with. Just look at the record breaking profits posted by the major high street banks.

You only have to look at the ridiculous scenario of unpayable third world debt to realise how interest always favours the rich, and never the poor - The rich get richer, and the poor get poorer

Joe_Bloggs

Interest is a mathematical tool for describing a change in things. It can also be a charge for borrowing money. Money is devalued by inflation over time.
I have seen no objections to profit sharing in financial ventures in islamic finance by those who share in the risks.
Are there objections to interest being charged by mutualy owned financial institutions of their members ? The institution cannot make a net profit. It must pay back any profit to the members. What is the situation with credit unions ?

J_B.

Revenge_of_the_Red_Devil

I'm not too sure about the exact rulings on the last 2, i'll get back to you. I think that profit sharing is alright tho - isn't that what HSBC's Sharia Account is all about?