There are actually two kinds of Islamic mortgages: Murabaha (mark-up sale) and Musharakah (partnership). as someone who has no background in economics whatsoever, could you please perhaps publish a recommended reading list (or even links to lectures) that those of us who are not so business-literate, can access? to see Islamic finance develop. At Ijara Community Development Corp. in Ann Arbor, MI, we offer various Islamic financing alternatives for your needs. So while riba may not always seem to us to be oppressive in our particular case, we must remember we’re actually contributing to a wider industry which is deeply immoral and deeply harmful. We’ve got lots of info on what an Islamic mortgage is already. That is what I turn to in Part Two  of this blog next week [. Key thing is I also hold Islamic mortgages are acceptable, so, while I see having kids means you want a house more, I would just got for an Islamic mortgage as that is an option for me. What we think is the problem with Islamic mortgages. Ameen Housing Co-operative (Ameen Housing) is an Islamic co-operative financial institution that offers shariah compliant solutions for home financing and replacing existing mortgage. what is an Islamic mortgage and why is it Islamic? Islamic finance… But I imagine you were looking for more than just a sentence, right? The overwhelming majority of our money is created this way and so to create more money we need to create more debt. Helping Muslims make smart and sharia-compliant decisions on their investments, personal finances and entrepreneurship journeys. In Part One I’ve tried to get preliminary confusions out of the way first. One of the major corollaries of this is that banks have to maintain certain liquid reserves in order to stay liquid and be able to pay back depositors when they ask for their money back. This same system led to the foreclosure of millions of homes, millions of unemployed, and tremendous suffering across the world in the past seven years – and we’re are all hard-wired into this system.” – Can you explain in more detail how exactly the riba institution caused these global suffering or any articles that address the impact of riba businesses on the economy/society? We found the same in our analysis of Al Rayan. at the bottom of this article, there are the links to all the relevant articles: https://www.islamicfinanceguru.com/2016/01/24/a-way-to-conceptualise-islamic-mortgages/, Now live at: https://www.islamicfinanceguru.com/2015/08/28/the-problems-with-islamic-mortgages-and-what-we-should-do-about-it/. So I should be quits, shouldnt it? The property I purchased for £225,000 has now sold for £150,000 at auction. Islamic mortgages are currently the only genuine solution for Muslims in the UK. Slowly over time you buy back more equity in the house and your rental payment decreases until eventually you own the house outright. In the case of money supply we don’t really have an alternative right now (I realise that this is a complicated area and might not make sense to those of you without an economics background, so bear with me, I will cover this properly in a later blog) but in the case of mortgages we do. The Islamic banks have their own approved solicitors to represent them in a transaction. That is what I turn to in Part Two  of this blog next week [update: this article is now live]. Second scenario – I fall behind on my repayments and eventually the house is repossessed. This is as our transaction with them is separate from their other affairs. It is against Islamic law to receive or pay interest, which has traditionally been a big problem for Muslims living in the UK, as it meant that only the very wealthy were able to buy homes … Think about that next time you use your debit card. Some scholars love it, others froth at the mouth upon its mention and have to do wudu again. It’s a small and relatively new market. A sharia-compliant mortgage allows you to buy a house in a sharia-compliant manner over a number of years without using any interest (riba). Firstly, it is no longer the case that there is no viable Islamic alternative, so the fatwa is not really applicable to our context. Ah but they don’t just use LIBOR terminology,” I hear you say. But then just as equally if you sell the house for 650,000, you make a profit of £425,000, as partners they should have a claim on the profit. . If you don’t use them, this usually means before anything has even happened: 1)   It’s going to take longer because of the extra work. With my experience in conveyancing, dealing with Islamic mortgages can be difficult. “They actually price up the Islamic mortgage using LIBOR. In this part I consider arguments put forward for Muslims to just take out conventional mortgages, and then turn to common problems people have with Islamic mortgages. My boiler breaks down and needs replacing, Mr Islamic banker will now be scratching his head when approached for his 75% share of the monies towards a replacement boiler. Your email address will not be published. 5 quick changes to make your finances more halal. You mentioned Islamic motgages have their own problems, is interest one of them? There are genuine concerns with the industry, don’t get me wrong, but they are not what we commonly think they are. But what many of us forget is that Islam didn’t forbid just individuals from dealing in riba, Islam forbade the entire institution of riba, from top to bottom. No promises but I’ll try and draw something up over the weekend iA, so watch out for that! selling graps to wine merchant) then it is not. Islamic banks are quite clear (just like another regulated bank) on where they get their money from. You’re not going to get drunk off that, and that’s why alcohol is really forbidden,” what would you say? Usually necessity in the Shariah is associated with dire need where threats to body, life, safety, and religion are at stake. Is a mortgage haram? In conventional bank, its called an interest that lender will earn, in Islamic bank its called a rent. September 23. I owe £168,750 to Mr Islamic banker – is he going to suffer the loss as anyone would do in a “partnership” – not likely, have a read of the small print in the mortgage offer……. Islamic Mortgages in The UK in 2021: The Definitive Guide, UK Banks That Offer Islamic Mortgages / Halal Mortgages in 2021, Home Purchase Plan – A Great Mortgage Alternative. The Islamic bank will buy the property for £500,000 having pre-agreed with the customer that the customer will then buy the property from the Islamic bank at a pre-agreed price, on pre-agreed payment terms. There is compensation for the time value of money (payment for the use of money) in both conventional and Islamic mortgages, and security is taken in the form of a lien (conventional) or part ownership (Islamic) so whether you call it interest or not isn’t really important. You mentioned in the article ” The overwhelming majority of our money is created this way and so to create more money we need to create more debt. A leading Islamic finance Mufti combines traditional teaching with cutting-edge insights from world-leading practitioners. I’ll be focusing primarily on Musharakah for this blog, as it’s the one currently most popular in the UK. To me it looks exactly the same thing as a conventional mortgage, with twisted terminology. I’ve been asked this a few times so I really should get around to it! In a conventional … For those who are interested, refer to the textbook “Islamic Finance: What it is and what it could be”, or just read about it here. This argument is the weakest argument put forward by this camp. This Islamic financial instruments and many other instruments are discussed in more details in phd Islamic finance, mba Islamic finance, diploma in Islamic finance and Islamic banking certification programs offered by AIMS. So you go the Islamic bank … Everyone loves having a pop at the Islamic mortgage, from the business-savvy uncle, the world-weary professional, to the ultra-religious brother down the Masjid. With an Islamic mortgage, you’re most likely going to purchase it under a Home Purchase Plan (HPP). The argument goes that people need a house to live in, and that in the absence of a viable Islamic solution, an individual who cannot afford a home otherwise can take out a mortgage. Some people have complained that Islamic bank contracts are nearly the same as a conventional mortgage contract, and just the word “interest” has been replaced with “profit-rate”. These and a number of other issues with Islamic mortgages will be discussed in Part Two of this blog series. Sorry, but I was not convinced. There are many forms of riba, some which look overtly oppressive, others less so. This same system led to the foreclosure of millions of homes, millions of unemployed, and tremendous suffering across the world in the past seven years – and we’re are all hard-wired into this system. https://www.islamicfinanceguru.com/2015/08/23/recommended-book-list-islamic-finance-economics/. Manzil are a mortgage lender in Canada and offer mortgages to house buyers, and also have a mortgage fund which people can invest into. I agree that it is a bit off-putting for the uninitiated that the same wording is being used, but it is actually standard practice in legal contract writing to work off templates and past contracts. (So don’t just go around quoting this paragraph as justification for taking out a mortgage from now on!). Islamic mortgages. We dive deep on the Canadian Islamic … You are comparing a multinational juggernaut that is the conventional mortgage industry, with a clientèle of around 60m in the UK, and a centuries long history, with an Islamic bank – a fledging company in a fledging industry, founded just about a decade ago, with a clientèle of about 2m. In fact the Bank of England is this year consulting on developing a Shariah-compliant liquidity facility for Islamic banks – as Islamic banks have been asking for this because they haven’t had access to the liquidity solutions the BoE provides to mainstream banks. 2020. Islamic Finance Guru… There are 2 main providers of home purchase plan (HPP) products in … How does Ijarah Work for Islamic Mortgage? This is the most popular complaint about Islamic mortgages. Therefore, you’ll pay higher 1) bank charges and 2) solicitors’ fees for an Islamic mortgage…. Ibrahim holds a BA in Philosophy, Politics, and Economics from the University of Oxford, an Alimiyyah degree from the Al Salam Institute, and an MA in Islamic Finance. (I’ll touch on Murabaha in a later blog, but if you have a specific query about murabaha structures comment away below). So if a juice shop sets up across the street from a pub and decides to price all of its juices in line with the price of beer across the road, is that juice permissible to buy? Think again. Given the centuries of perfecting that have gone into the conventional mortgage contract, one can understand why Islamic bank lawyers borrow phraseology from them. Islamic Finance Guru 622 views. Islamic Finance Guru (IFG) is an Islamic finance comparison and analysis site that helps people with their investment, personal finance and entrepreneurial journeys. jzk khayr for your thoughts and comments as always and apologies for the late response! This may sound like a stupid question, I’m a little confused, if one takes out an Islamic mortgage is there any interest involved? Here is a. explaining this for the more technically minded, but in brief, every time someone asks for a loan banks simply pop money into existence. It’s just not comparable is it? Thank you for writing such a meticulous blog. That does not mean that Islamic mortgages are perfectly halal and do not have serious issues associated with them. You are sold back a lease which you pay until you own the property. Some are concerned that it looks too much like a conventional mortgage, while others are upset that it is too different from a conventional mortgage. That is how instinctively suspicious regulators and veteran bankers are to new players joining their party, and so you can imagine how suspicious and confused they are when confronted by a completely different model of banking. Oh and can you update the Bank of England report link you provided? from a purely fiqhi perspective that above quote statement was correct – though of course there is a point where if you’re just facilitating haram (e.g. The UK government in particular has already publicly backed growth in this sector, introducing changes to Stamp Duty rules to facilitate the growth in the Islamic mortgage market and the promise of the issue of a UK sovereign Sukuk (bond). Potentially. The primary object involved in both approaches is to finance someone’s purchase of a house and to provide the bank with sufficient protection for their loan/investment. Islamic Finance Guru. Did you know that in the UK only one full bank license has been given out for 100 years? Some are concerned that it looks too much like a conventional mortgage, while others are upset t. from a conventional mortgage. 97% of our money supply is created by private interest-dealing banks who simply pop money into existence. This same system led to the foreclosure of millions of homes, millions of unemployed, and tremendous suffering across the world in the past seven years – and we’re are all hard-wired into this system. Something not very nice, I imagine. Same principle, someone else (bank) purchases a home for you which you have to repay back over time. To solve this problem they founded Islamic Finance Guru. The link you followed may be broken, or the page may have been removed. 2)   It’s going to cost you more as solicitors will increase their fees. Our investment, finance and mortgage products are based only on Shariah compliant underlying principles including Murabaha (cost plus sale), Musharaka (partnership) and Wakala (agency). UK Islamic Mortgages 2020: The Definitive Guide. This would be a haajah (a category less than daroorah) but as it goes on and on, its justificatory power mounts up. Just like we don’t have any qualms buying and selling halal stuff from someone we know also makes an income from haram sources so too there is no Shari’ problem here even were they borrowing off LIBOR. Similarly Islamic finance contracts within … However Islamic banks, with their asset-backed mortgages, are treated differently to conventional lenders with their debt mortgages. Come join the debate. Your email address will not be published. The whole point of this article was to get some common misconceptions out of the way so we can have a sensible, informed discussion. I don’t have kids – but even were I to have them I don’t think that would change my view on whether a home is a necessity or not in our current context. You need to agree with the terms to proceed. 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