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Alburaq Mortgages
Alburaq Sharia home finance
Alburaq Sharia compliant home finance is based on the Islamic financing principles of Ijara and Musharaka, and therefore provides a great option for those looking for Sharia compliant home finance in the UK.
The way it works is that the customer and the bank contribute towards the purchase of a property. An example of how this system works is a bank may put 90% towards the cost of a property and the customer puts in 10%.
Monthly purchase instalments are made to the bank by the customer, the effect of this is that the bank sells its share of the house to the buyer.
Every payment made to the bank reduces its share in the property while the buyer’s share increases. For the duration of the purchase instalments, the bank will charge the buyer rent for using/occupying the bank’s share of the property. The rent calculation is based on how much of the property each party owns.
Most people see very little difference between this and a conventional mortgage as both methods have monthly payments.
Although unlike a conventional mortgage, the money is lent to help buy a property and any profit is made through the customer’s occupation of the property as a tenant.
This then meets with the principles of Islamic finance where a charge can be made for the use of a property, but can’t charge for the use of just money as this would be interest.
There are also two main differences in the relationship between the buyer and the bank, these are:
- As the bank is owner of the property there are associated risks for the bank. This doesn’t occur in a traditional mortgage as the bank never owns the property.
- Traditional mortgage customers are known as borrowers, whereas under the Ijara / Musharaka system the customer is a tenant of the bank
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