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High Street bank offers Islamic mortgage
BBC HSBC has become the first major UK bank to offer mortgages that comply with Islamic law. Under Islamic law, the receipt and payment of interest is forbidden. As a result some of Britain's two million Muslims have chosen not to take out conventional mortgages or open bank accounts. This can leave them having to pay in cash for large purchases, such as houses. Lease back Under the HSBC scheme, the bank buys the property and leases it back to the customer over an agreed term.
The customer makes monthly payments made up of rent and contributions towards the purchase price. HSBC owns the property until customers have made their final payment. Crucially, at no stage is the customer paying interest - the paying of 'rent' is seen as a fair payment for use of the property rather than a charge for borrowing money. In addition, HSBC is launching an Islamic law-compliant current account, which has no overdraft or credit card facility. Money paid into the current account will be administered in accordance with Islamic law and not used for generating interest. The current account and mortgage products are to be introduced in selected HSBC branches from 14 July. Huge market Previously only relatively small institutions such as the National Bank of Kuwait and the West Bromwich Building Society have offered tailored Islamic financial products for UK customers.
Last year a report from market analyst Datamonitor estimated that demand for Islamic mortgages in the UK was so strong that gross advances could reach £4.5bn ($7bn) in 2006. According to Iqbal Asaria, spokesman for the Muslim Council of Great Britain, HSBC's move is long overdue. "Some (Muslims) are wracked with guilt because they have broken Islamic law. While others' values are beyond question, they are more pragmatic in order to keep a roof over their family's head. "HSBC's initiative frees them from this dilemma and is the first step to delivering a level playing field for Muslims seeking financial solutions in the UK."
Have you used, or would you like to use, Islamic financial services in the UK? How easy was it to find what you wanted and how well did the service meet your requirements? What more could financial service providers do? Let us know using the form below. Your comments: I tried to find an Islamic mortgage but could not find one when I bought my
house last year in Leeds. I hope that it will be easier in the next few years.
Will the Islamic Mortgage be available to non-Muslims?
I have always asked my banks not to pay me interest on my money, but most
banks don't have that facility, so I have the interest moved to a savings
account. If a bank was to offer me the facilities then I would move my mortgage
and banking over to them. I feel guilty each time I use the bank's facilities as
I have no option but to use them
Finally, UK banking wakes up to the needs of the Muslim community. I've been
looking to buy a house with the National Bank of Kuwait. Now I can use my own
bank, HSBC.
This is all very well, but I am interested in finding out how much
down-payment one would have to make (as much as 30% of the property price was
required by some of the other institutions mentioned)? We need to ascertain
whether this really helps people on low income and/or gives them the same
opportunity as others!
I can't believe that people are falling for this. You can call it anything
you want - at the end of the day, what the consumer is paying is interest to the
banks, except it's dressed up as 'rent'. At the end of the day, one could take
the same view of the current system and think of the monthly mortgage payments
as rent.
Does this mean that these mortgages will be completely shielded from interest
rate fluctuations? If so, this may appear a little unfair to non-Muslim
customers, unless this product is to be made available to all. This type of
mortgage would be fantastic for anyone needing to remain within a strict budget,
especially in the long-term.
I would love to see Islamic financial products introduced in the USA. If you
think UK has a huge market for it, wait till you survey the US market. Muslims &
non-Muslims here are thirsty for interest-free solutions Not surprising that HSBC have taken this action as they have a large presence
in the middle east. An important point for all muslims to remember is that even
though Islamic Mortgages may be more expensive than conventional interest based
mortgages, because they are Halal they must be your first choice. What we
require now is more solicitors to understand the legalities and processes
involved in purchasing a property using an islamic mortgage. A long-awaited product range that the Western Banks could have offered years
ago. Nevertheless it's a good move. I'll be quick to switch my mortgage over.
I (along with many) have always wanted easy access to Islamic financial
services in the UK. Until now only a few of the "smaller" banks have offered
anything that remotely match the requirements of Islamic Law - unfortunately,
many of these services involve the consumer having to pay out much more in the
long term when compared against a conventional mortgage. Personally, I'm glad
that HSBC have been the first of the "big banks" to offer this service, as I
have been a life-long customer and have never had problems with them. Unless the mortgages are completely untied to underlying interest rates, the
suspicion remains that 'rent' is just another term for interest. Other
considerations would include questions on where the bank is getting money to buy
these properties - if it's in the normal way, then that money is already
tainted, and crucially, what happens when a 'tenant' is struggling to make the
'rent' - in any Islamic business, the service-provider has to share any risk
with the purchaser. Islamic mortgages are by no means a perfect solution to Muslims, but at least
they are a step in the right direction at avoiding in dealing with interest
based products. I have currently got a Manzil loan (Ijara scheme - repayment
based on leasing) with the United Bank of Kuwait (UBK). The administrative costs
were very high and the application process was slow and complicated. My
repayments are high too, compared with conventional high street products, but
this is mostly to do with economies of scale. I can understand why many Muslims
are put off by the UBK home financing schemes. More competition and products in
the area of Islamic finiancing is most certainly welcome. It is a good idea that such products are becoming availalbe, irrespective of
whether it has been launched by a Western Bank. If the products themselves stand
up on their own (and comply with Shari'ah)and provide a real alternative to the
conventional mortgage even if it is a little bit expensive, we should seriously
consider this form of financing. It is only a matter of time until this form of
financing directly competes with the conventional mortgages and provides a
choice for Muslims and Non-Muslims alike. After all the concept of fairness and
equity is universal.
I have also heard that there will be 3 other new providers of Islamic
mortgages launching products in the autumn- so there will be some competition.
In many countries where Islamic mortgages have existed they are also the
favoured option by non-muslims. It will be interesting to see what happens over
hte next few years.
I for one am very glad, I have a mortgage with UBK and I know several of my
friends want an islamic mortgage but cannot afford the deposit which is
substantial. As for those who say its interest dressed up as rent then all I can
say is at least we are trying to follow a more islamic path and these schemes
have been approved by our scholars hence we have no guilt :)
A rose by any other name Surely this is just a way of "getting around" the
interest problem. I don't understand why paying interest causes such a problem for Moslems when
the Bible bans the payment of interest as well and calls it an abomination -
Ezekiel 18:13. Those who pay it "shall surely die". Why don't Christians care
about it?
I'm pleased that banks are waking up to the needs of their minority customers
- but frankly I'd like to see them wake up to the needs of their majority
customers with services like longer opening hours, shorter clearing times (why
does it still take 3/4days to clear money?) and services for customers with poor
credit ratings. It took several years with a big stick from the government to
get any movement on that on didnt it? What pressure needs to be put on them to
open outside 'civil service' hours or re-open local branches?
I'd like to know whether the "Islamic" mortgages will work out more expensive
than the "non-Islamic"...So instead of paying interest, at say a modest 5%, I
could be ripped off by someone exploiting my guilt?
A fine idea in theory, but (a) the whole banking system is run on non-Islamic
principles anyway; and (b) if the bank really "owned" the property (any more
than a a purchase on an interest based mortgage) then the property buyer would
never be able to own the property as its value would escalate each year as house
prices rise. Anyone who thinks that this is anything more than an expensive
"interest" mortgage is deluding themselves. Devout Muslims should wise up and
realise that there are better things you can do with your money than give it to
the banks (eg donate any savings or interest earned on interest-based accounts
to charity). |
It would make a real difference if there were more products on the
market ... then there would be more choice for Muslims
