Islamic mortgages, much cheaper!

lee_rees

Hi,

I've recently been trying to get a mortgage for £100,000 with the banks and the best I was offered was £530 per month fixed rate by Lloyds TSB. Reasons quoated for the high interest rates were a) you are self employed and b) you are not a home owner, no I'm not that's why I want a mortgage?!

I'm not a Muslim but decided to give the Islamic Bank of Britain a try, they offered me the same mortgage for £410 per month fixed rate.

I was wondering if anybody here could recommend any other Islamic banks or mortgage brokers that may offer a better deal than the IBB?

ViolaLass

You are still effectively charged interest on the loan, either by 'paying rent' as well as repaying capital or by buying the house from the bank for more than was paid to the vendor e.g. bank buys the house for £100k and sells it to you for £120k.

Have you checked whether the two deals are truly comparable?

MrsBartolozzi

Are both the mortgages for the same length of time? Have you checked the overall interest rate?
I had a look at the IBB's website and while they make it sound like you are not paying interest you still pay a % fee for rent of the bit of your property that the bank still own, just the same as you pay interest on the outstanding loan from the bank for a standard mortgage. Seems to me only the words used are different. The fixed rate of 3.99% for one year increases to base rate + 3.99% after the year is up. Is this really a good deal?

2sides2everystory

I have long wondered about that - so how is that £430 a month comprised? Clearly if it contained no interest then on £100,000 all the capital would be repaid in less than 20 years.

Was it a 20 year contract? Is there some kind of fee in lieu of interest. I kind of understood that turning a loan into some kind of "shared commercial enterprise" (shared-equity/shared profit?) was one sharia compliant way of going about it.

Are you able to explain it for us before we all rush round to see them


Ah yes I see two other posters are on to the same questions ...

lee_rees

With the islamic mortgage a section of your repayment is classed as "rent" however it is fixed over the term. This is a 30 year term with both banks.

I don't know a lot about mortgages but I was under the impression that interest rates are fixed over a certain amount of years and then you are forced to change. If the economic recovery continues then surely the bank of England will raise the interest rates meaning in 5 years time I could be paying even more with Lloyds!?

The islamic "rates" that I was offered is fixed for the full term.

Forgive me if I'm wrong but the Islamic mortgage seems to be a lot cheaper, fairer and safer way of buying a house. So I'm definitely interested in links and recommendations for other Islamic banks.

2sides2everystory

Lee, MrsB reckons that that "fixed-rate" deal ISN'T (fixed).

I have long argued that the OFT or FSA or both of them should stamp on banks who advertised deals as "fixed-rate" when in fact they are simply low start arrangements and you start getting bashed after 12 months.

If MrsB has guessed right about your deal then it doesn't look good at all.

On the other hand, if you are right, then it seems a very good deal and the sentiments you have expressed about how you would like a mortgage to work over 30 years are indeed broadly the way they do it in some parts of Europe.

beecher2

If you have a look here http://www.islamicmortgages.co.uk/
it seems that Mrs B is correct - certainly their website states that the rent changes over the term.

lee_rees

beecher2 wrote: »

If you have a look here http://www.islamicmortgages.co.uk/
it seems that Mrs B is correct - certainly their website states that the rent changes over the term.

I've double checked with them and they have given me a decision in principle stating that the "rent" is fixed for the whole term. I've also got them to write me a letter stating that the rent will not change throughout the mortgage term.

I did mention the website and she told me that the mortgage deal they have offered is tailored to my financial circumstances.

I'm presuming that this will legally protect me in case they did try and change the rate in the future?

2sides2everystory

It seems they may be playing with words ... they might call the 3.99% part "rent" but what do they call the underlying base rate which is likely soon to go up and keep going up to goodness knows what - "ground rent" maybe?

Seriously Lee, this is not a gift horse, and there is nothing new under the sun ... you need to understand their play exactly.

LittleMissAspie

lee_rees wrote: »

I've double checked with them and they have given me a decision in principle stating that the "rent" is fixed for the whole term. I've also got them to write me a letter stating that the rent will not change throughout the mortgage term.

I did mention the website and she told me that the mortgage deal they have offered is tailored to my financial circumstances.

I'm presuming that this will legally protect me in case they did try and change the rate in the future?

"Rent Rate = Base Rate + a margin of 3.49%, currently 3.99% until 31st January 2012 reverting to Base Rate + 3.99% thereafter. (see note 1) "

"1. The Bank reserves the right to change the margin on its product. The maximum increase in the margin will be 2% above the initial margin that applied at the outset. Customers will be given at least 30 days advance notice of any changes in the pricing structure."

In other words, they have promised you that their rate of 3.49% will not change but they also charge the base rate which can only go up. They also reserve the right to change the 3.49%. I don't see how this is any different to a tracker mortgage.