"Islamic" Mortgages

Woby_Tide

There was a letter in the Sunday Times Money section concerning the two styles. One appeared to be similar to the shared ownership style structure that already exists(bar the fact that the Islamic version doesn't involve interest, just different term/payments for the loan). The more intriguing one was called "Murabaha", basically you find your house then agree a price with vendor, then the bank takes over and pays that price to vendor. You then pay the bank a set monthly payment for a set term so you end up paying the bank a total of "selling price + x%". What I couldn't work out though was what the x% would be. The banks must have to make an exceptional guess to what they think the house price would be in say 20 years time to make it worthwhile and potentially I guess either side could be quids in depending how the market goes over time. Does anyone know what the % used is or have used these style of mortgages. The shared ownership style is offered by HSBC on the high street whilst the latter is only seemingly available through an Islamic Financial Company/Bank in the UK.

Not planning it myself, just very curious about how it all works out given the very fluid nature of the housing market especially over such a long term.

Paul_Herring

Google is your friend.

Murabaha - How it works (Includes calculator)

Woby_Tide

ah good find, I did a quick search but most talked about them without calculators. On balance it looks like the bank.finance company err on the higher side to cover their backs *shock*

Tim_L

You have to say that this is really smoke and mirrors around a completely conventional mortgage. The only difference really is the form of words used to describe it: the purchaser being quoted a price 20 years hence based not really on property prices (very unpredictable, and potentially very expensive) but on what is to all intents and purposes the application of a fixed compound interest rate (presumably based on long term interest rates and a safety margin). There's even a standard 2.5x salary multiple.

Loaded_Bachelor

On a related subject, how do companies, corporations or individuals raise money to finance their businesses? Presumably this is also achieved by careful wording substituting the words loan repayment with paying a fixed amount of your company revenue to the finance company.

Also what about Islamic countries who receive loans from the I.M.F. How does this work?

To try and give some religious balance there are some similar parallels of religious beliefs affecting commerce or economics in both the Christian and Jewish religion, and I'm sure in many other religions too.

The Christian one, not working on a Sunday: fairly recent example of this was the triple jumper Jonathan Edwards not jumping on a Sunday for many years but then eventually he changed his mind and went on to win Olympic Gold (I think on a Sunday!).

The Jewish one, not working on a Saturday or (I think) even using transport vehicles or electricty etc. I heard somewhere that to get around this in hospital intensive care units in Israel that the electricity is stored up on the Friday and then used on the Saturday to adhere to orthodox Jewish law.

freestyle_3

Ok,

Everyone else must have seen this on the news..

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