BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific Arabic Spanish Russian Chinese Welsh

 You are in:  Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

Commonwealth Games 2002

BBC Sport

BBC Weather

Monday, 18 February, 2002, 11:34 GMT
UK to encourage Islamic mortgages
Mortgage application
Leading banks prepare to launch special home-loans
Andrew Verity

The BBC has learned of moves by the Treasury and the Bank of England to encourage Islamic mortgages, investments and current accounts in Britain.

With the number of well-to-do British Muslims growing, many are avoiding buying homes.

Mortgage application
Many Muslims are renting their homes
That is because it is against Islamic law to borrow or lend at a rate of interest.

Now it has emerged that at least three leading banks are preparing to launch special home loans that get round the problem by avoiding charging interest.

But they need the Treasury to change the rules to make their plans viable.


Gathering at the Ar-Rum social club in the City of London are successful British Muslims who want to enjoy the fruits of their work without ditching their beliefs.

They have got the resources for a conventional mortgage, but they would not do that because it does not comply with their religious beliefs

Aftab Siddiqui
Here the drinks are soft, the food is halal and the entertainment is clean.

But when it comes to finance, British Muslims are in a constant dilemma.

Under Islamic law - Sharia - you cannot lend or borrow at a rate of interest.

Either you break the law, or you do not get a mortgage.

"If you follow the strict law of Islam, you should not be giving interest and you should not be receiving interest," said one.

"Living in the Western society, it becomes extremely, extremely difficult to avoid."

"It's a necessary evil," said another.

Growing market

Market research from Datamonitor shows the number of wealthy British Muslims is growing.

Led by HSBC, British banks are now trying to devise mortgages for them that avoid charging interest.

Aftab Siddiqui is the British head of iHilal, a Dubai-based finance house that helps banks market home loans that comply with the Sharia.

"There is this problem that they have got the resources available to get a conventional mortgage, but they would not do that because that does not comply with their religious beliefs or Islamic lifestyle," he said.

"That has been an issue of concern for them and they are still living in a rented property."

How does it work?

With Islamic mortgages, the bank might buy a 90% share of the home while the homebuyer buys 10%.

The homebuyer borrows nothing, but pays a rent instead, only some of which will go straight to the bank.

The rest goes towards gradually buying the bank out of its share of the property.

These home loans do comply with the Sharia, said the Islamic scholar, Dr Zaki Badawi of the Muslim college in Ealing, west London.

"You may say; 'but that's very much like the other companies', [but] there is one difference which is very important," he said.

"Supposing he failed to pay and we're going to sell the house. If I am a bank, a Muslim bank, lending to a Muslim, sharing with him, I am not going to sell the house in the way that it is sold now, by putting it in an auction and selling it at the easiest and the fastest price."


The question these new financial services will raise is whether or not ordinary Muslims will be interested.

Amer al-Ali, who runs a halal takeaway at a west London market, was sceptical about Islamic mortgages.

"Here in Europe - England, France, anywhere in Europe - you must deal with all these things the same way as other people," he said.

For now, Islamic mortgages are only for the wealthy.

Because the bank takes ownership of the property before the homebuyer does, two sets of stamp duty are paid.

On his own initiative, the Bank of England governor, Sir Edward George, has met Islamic bankers and the Treasury has set up a working party to look at whether that can be changed.

The hope is that by next year, affordable Islamic mortgages will be a reality.

The BBC's Leslie Goffe
"Mainstream financial service companies have begun to view this religious community as a lucrative untapped market."
The BBC's Andrew Verity
"Islamic mortgages are only for the wealthy"
See also:

28 Jan 02 | Education
University's Islamic research tie-up
27 Mar 00 | Business
Online investing for Muslims
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories