Islamic bank home loans query

zippy3

Hello!
I was listening to the Jeremy Vine show the other day when they were talking about home loans from Sharia/Islamic banks.
As far as I can gather, Islamic law does not allow for profit to be made from interest so there is no interest on these loans.
I was wondering if anyone has any experience with these type of loans?

silvercar

The bank buys the home at the price agreed with the seller, the bank immediately sells it to you at a price that reflects the fact the bank is lending you the money to be repaid in instalments over 20 years. You then repay the bank the agreed instalments at the end of which the property becomes yours.

The instalments are similar in size to the repayments on a "normal" repayment mortgage.

There was a problem with CGT in that the bank had made a gain in the time it owned the property without ever living in it; I don't know how/ if this was sorted.

UK007BullDog

So it is not interest free. It is just not labelled "interest".

eldowardo

also with paying the mortgage back the bank can charge you rent instead of interest

ooh ive just realised a loan will be different to a mortgage... tee hee how daft of me

maninthestreet

UK007BullDog wrote: »

So it is not interest free. It is just not labelled "interest".

I understand the term that is used is 'rent'. It's really just game of semantics.

zippy3

Goodness me I'm still confused, but it doesn't take much. :rolleyes:
So if I decided to re-mortgage with one these types of banks, my current mortgage is £67,000 I would be paying this and an additional 'rent', not just the £67,000?
Is that correct?

Hi, silvercar; is this the point where they would calculate the extras?
"the bank immediately sells it to you at a price that reflects the fact the bank is lending you the money to be repaid in instalments over 20 years"

Thanks.

silvercar

The bottom line is that you are not going to gain by taking this mortgage rather than a standard mortgage. Unless you have a religious reason to avoid paying interest there is no point to it. Only a limited number of people operate it; the pseudo "rent" is likely to be higher than the mortgage payments you would make on an ordinary mortgage (as you can't pick and choose from the multitude of lenders around) and there are admin/ legal hurdles in the way.

Say you want to remortgage with your 67k mortgage, a standard repayment mortgage may have repayments at say £600 a month over 20 years. Instead islamic bank unlimited buy your property and rent it to you for £600 per month giving you an undertaking that they will give the property back to you after 20 years. You gain nothing, there is the hassle of not being the technical owner of the property, a remortgage away from islamic bank is more difficult etc. Unless you have a reason for doing this, I can't see the benefit.

zippy3

Thank-you very much.