Alternative to Islamic mortgage?

Wh05apk

besti wrote: »

So, let me get this right! A sharia mortgage does not charge interest, the bank just adds a profit to the money you owe them. That's brilliant, just call interest another name and you have a sharia mortgage. I am goign to sell cider in Saudi and just call it it fizzy apple juice that make you feel a little funny.

I must admit I have never fully understood these myself, to me if a bird walks like a duck, and quacks like a duck, you can't then call it a dog!!

holly_hobby

besti wrote: »

So, let me get this right! A sharia mortgage does not charge interest, the bank just adds a profit to the money you owe them. That's brilliant, just call interest another name and you have a sharia mortgage. I am goign to sell cider in Saudi and just call it it fizzy apple juice that make you feel a little funny.

I agree, in essence its just another way of deriving profit from the lenders point of view, which of course is their basis of operating - with traditional lenders achieving this by the charging of interest on loaned capital.

Whilst we may easily equate the charging of rent/lease or added profit, as the bank charging interest just under another guise, its the underlying difference and conditions under which the bank makes their money/profits, that distinguishes in this case a Sharia mge from the convential mortgage arrangement we are familiar with.

Not all formats involve the front loading of profit - as touched on in my first post there are 3 variants on how the property is purchased and the finance repaid.

In the case of charging a rental fee (the term is Musharaka (also referred to as diminishing Musharaka), in which you jointly purchase the property with the lender & then effectively buy the lenders share over a period of time, achieved by monthy payment and is really a variation on shared equity arrangements we are all familiar with).

A further format is by charge of a lease fee ( termed Ijara - in this case the bank effectively purchases the property, with the individual paying lease payments over the term to pch the property from the bank).

And finally the addition of profit termed Murabaha - where the bank buys the property, then immediately sells it to the individual, with a mark up (profit added). The individual then making regular monthly repayments to effectively repay the interest free mortgage.

Of course you can see that interest free finance under a Sharia mge arrangement, does not necessarily equate that it will save you money over your normal high street lender - indeed depending upon the arrangement it may actually cost more (notwithstanding in most cases larger equivilent deposits than traditional lenders).

As stated, its a niche lending/advice area, and any guidance should be sought from an adviser with the relevant knowledge and contacts, to ensure that the individuals particular requirements are understood and duly satisfied in recommendations. (I would also like to stress that Sharia mortgages are available to all denominations, and are not purely exclusive to practising Muslims)

Hope this helps

Holly

CapJ

besti wrote: »

I am goign to sell cider in Saudi and just call it it fizzy apple juice that make you feel a little funny.

I wouldn't. They flog people for this sort of thing.

holly_hobby

CapJ wrote: »

I wouldn't. They flog people for this sort of thing.

:rotfl:That did make me titter !!!

H

handytips

I just find the whole idea of Sharia mortgages a total and utter waste of time. I have done many mortgages for Islamic people and none of them were bothered about having one of these things.

holly_hobby

Ooh they were naughty then, as Sharia is the moral and religious law of Islam (followers being referred to as Muslims), and as defined within the Qur'an.

They may not have been practising Muslims is the only reason why I can think (if they were of course aware Sharia Mges were available within the UK), that they chose not to effect one.

Holly

Southend1

How does the re-naming of interest as profit or rent change the fundamental premise behind the mortgage? I'm interested to know if there is something different in the way Islamic mortgages are funded? e.g. not from savings paying interest etc?

holly_hobby

Southend1 wrote: »

How does the re-naming of interest as profit or rent change the fundamental premise behind the mortgage? I'm interested to know if there is something different in the way Islamic mortgages are funded? e.g. not from savings paying interest etc?

As in my earlier post, benefit from interest is not permitted under Sharia - however thats not to say the generation of profit isn't.

The fundamenal difference is how the gain is achieved by the provider - which under Sharia is not by the charging of interest.

The providers working capital is obv from the profts generated under their business model, and/or other Sharia compliant methods (including their own inter bank borrowing).

Hope this helps

Holly

Southend1

holly_hobby wrote: »

As in my earlier post, benefit from interest is not permitted under Sharia - however thats not to say the generation of profit isn't.

The fundamenal difference is how the gain is achieved by the provider - which under Sharia is not by the charging of interest.

The providers working capital is obv from the profts generated under their business model, and/or other Sharia compliant methods (including their own inter bank borrowing).

Hope this helps

Holly

Yes i see.... but what i can't get my head around is how using profits generated from interest bearing investments is not just the re-naming of interest? If the profit from non interest bearing investments was ringfenced as funding for Sharia mortgages then this would make sense to me.

holly_hobby

Southend1 wrote: »

Yes i see.... but what i can't get my head around is how using profits generated from interest bearing investments is not just the re-naming of interest? If the profit from non interest bearing investments was ringfenced as funding for Sharia mortgages then this would make sense to me.

But a Sharia compliant banking institution, is not using interest baring investments or levying interest on their loaned capital - as that would be against the principles of Shaira Law ( re - Riba).

Their profit and operating capital is thereby generated and managed from adminstering their business model under strict Sharia rules, which in general prohibits the application or benefit of interest.

Instead, in the case of loaned capital, its the application of a different set of costings, which are instead utilised to generate profit. Of course its easy to see that this is really just a form or interest dressed up another way, but the important fact to note, is that under Shaira it isn't that capital is generated, its HOW it occurs (or its source)which is important, and in respect to Sharia morgages, as long as it is evidenced that the capital is not derived as a benefit of interest, the transaction remains Sharia compliant.
With regards to the banks investments you mention, there are various and v complex regs re Sharia compliant investments, but one of the very basic exclusions are that of guaranteed return or excessive risk, which means that the use of conventional investments and derivative trading to increase the banks capital - are simply unsuitable to Islamic banking principles. (there are other v strict regs for the source of capital/gain that are too complex to discuss here).

Hope this helps

Holly