Islamic Mortgage

Types of Islamic Mortgage

CMS employs only qualified firms of solicitors who specialise in conveyancing. Many of our panel solicitors also specialise in conveying property which is being bought with the aid of an Islamic mortgage. When a property is bought with the aid of an Islamic mortgage there is more work involved for the buyer’s solicitor as they are required to liaise with the bank’s own solicitor, providing details of title, searches and enquiries to the bank’s solicitor and dealing with any queries or special conditions raised by the bank. They must also check the agreement and any lease provided by the bank’s solicitor and advise you on the contents of these documents. You will note from the CMS quote provided that a fixed fee of £75 plus VAT is charged for this additional work.

Islamic Mortgage Explained

The basic principle of Islamic finance in the purchase of a property is to create a fair agreement between bank and customer that does not involve the payment or receipt of interest which is not permitted under Islamic law.

With an Islamic mortgage the bank and the customer share the risk of the investment in the property and divide any profits between them. The terms of the agreement are laid out in writing between the parties and the buyer’s solicitor will advise the buyer on the terms of that agreement.

There are two main categories of agreement as follows:-

Ijara (Leasing agreement)

·You find the property and agree a price with the seller.

·You must appoint a conveyancing solicitor.

·The bank does the survey and buys the property from the seller.

·The bank’s solicitor checks the legal title and draws up the lease document. The property is registered in the bank’s name.

·The bank then sells the property back to you at the same price.

·You agree to pay rent to the bank for the benefit of living in the property.

·A lease agreement is drawn up in respect of the rent payments. Your solicitor also checks the title (deeds), searches etc. and the lease and advises you.

·In addition to the rent you pay a contribution towards the purchase price each month.

·The monthly payment is usually fixed in advance on a yearly basis.

·You can usually pay off more than the agreed monthly payment without incurring a penalty.

·The amount owed to the bank decreases each month until the total price has been paid and the property is yours.

Murabaha (Buying/Selling agreement)

·You find the property and agree the price with the seller.

·You must arrange the survey and appoint a conveyancing solicitor.

·The bank then buys the property and then sells it to you at a higher price (which is calculated by taking into account the original price of the property, the repayment period agreed, less the deposit already paid by the buyer).

· Generally a large deposit of around 20% of the purchase price must be put down by the buyer on the day of the purchase.

·On completion the property is registered in the name of the buyer.

·The outstanding balance under the agreement may be paid off at any time.

·The bank generally offers a fixed repayment period with a fixed monthly payment for the term of the loan.