ISLAMIC MORTGAGES IN

THE UK IN 2020
The Definitive Guide
 This guide is kindly sponsored by

www.gatehousebank.com
Gatehouse Bank plc takes no responsibility for the accuracy of the information contained within this document.
All views expressed are that of the document’s author (Islamicfinanceguru.com). This document provides general
information only and should not be relied upon to make decisions without seeking professional advice in line
with your own circumstances.

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 Islamic Mortgages in the UK: The Definitive Guide

As someone who has recently taken out an Islamic mortgage in the

UK, I know there’s a bunch of stuff that I wish I’d known at the start.

This guide is designed to do that. We will cover everything you need to

know as you start on this exciting new chapter of your life. This analysis and
information has been compiled over the last 4 years across a whole series of
articles and reports and is constantly being updated. It nicely complements
our Islamic mortgage comparison page.

Contents:

1. Islamic mortgage market in numbers………………………2

2. Islamic mortgages in the UK: How does it work? ……….3

3. Is an Islamic mortgage halal or haram? …………………..7

4. Types of Halal Mortgages…………………………………...14

5. Best Islamic Mortgages in the UK in 2020……………….16

6. 15 Tips to get a Cheap Islamic mortgage………………...18

7. Wider Islamic Financing in the UK…………………….…..28

8. How to get an Islamic mortgage in the UK……………….29

9. Islamic mortgage UK Reviews……………………………..31

10. Islamic mortgage Guidance and Resources…………….32

Definitional tip: an Islamic mortgage is the same as a halal mortgage

and a “home purchase plan” or “HPP”. We use the terms interchangeably in
this guide, and so does the wider market. Don’t worry, they’re all referring to
the same thing.

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 Islamic mortgage market in numbers

1. There are 6 providers of HPP products in the UK today.

2. There are approximately 2500-3000 residential and buy-to-let

Islamic mortgages issued in the UK annually.

3. Only around 40% of Islamic banks’ incomes and financing

assets are linked to retail products (i.e. products to do with
everyday people like us). A large chunk comes from commercial
and premier products.

4. Last year Al Rayan made a £6m profit from an income of £39m.

5. 49.7% of Muslim adults earn less than £20,000 per annum

(p.a.), compared to the 53.1% of UK adults overall. 43.2% earn
between £20,000 and £50,000, compared to the 39.5% of all UK
adults. 7.1% UK Muslim adults earn over £50,000 which is
similar to the overall UK picture which shows that 7.4% of adults
earn in excess of this figure.1

6. The majority, 59.5%, of Muslims live in owner-occupied

properties. This is under the figure for all UK adults which is
67.9%2

7. 46% of Muslim consumers have never used Shariah-compliant

products. 3

8. 61% believe Islamic finance works hard to better serve its

customers and 85% of existing Islamic finance customers say
their experience exceeded expectations.4

1
See: https://www.alrayanbank.co.uk/useful-info-tools/media/facts-figures/

2
Ibid.

3
https://gatehousebank.com/news/almost-half-of-muslim-consumers-have-never-used-islamic-finance

4
Ibid.

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 Islamic mortgages in the UK: How does it work?

First, what actually is an Islamic mortgage? Well, in the UK there are

roughly 3 types of Islamic mortgage structures.

Diminishing musharaka, aka the Home Purchase Plan

This is the standard Islamic mortgage and for residential mortgages,

this is almost always the structure that you will be purchasing.

This is a regulatory structure that was specifically created through legislation

to assist the Islamic finance industry in being able to provide an Islamic
alternative to mainstream mortgages.

For a product to be a legal HPP structure, the bank must hold the buyer’s
beneficial interest on trust to be delivered over to the buyer once he has paid
off the amount necessary to buy the full interest in the property. At this point
the buyer will be transferred over the legal title and will hold complete legal
and beneficial interest in the property.

“Hang on, what’s all this beneficial v legal gobbledygook?” you might be
saying at this point.

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Simply put, a legal owner of a property is the “formal” owner of the property,
i.e. the one whose name is on the freehold title at the Land Registry. A
beneficial owner is someone who has the right to enjoy or benefit from the
property, and this can include the right to any income from the property or to
reside in the property.

To complicate matters further, an interest in a house can be a freehold or a

leasehold. A leasehold interest is different from a freehold in that it is
necessarily time-restricted. A leasehold could be for a few days, or many
hundreds of years, but eventually it will expire. When it does expire, the
freehold owner will be able to step in and take possession of the property.

The HPP uses a combination of freehold and leasehold to deliver a

diminishing musharakah/ijarah model. This Islamic finance model goes thus:
the buyer of the property slowly buys more and more of the house over time,
and his rental payment on the amount he does not own slowly decreases at
the same proportion. Eventually he owns the entire house and is no longer
paying any rent.

This is a little diagram of how the whole thing works:

So the situation is that the Buyer wants to buy the House, but he doesn’t have
enough money to buy outright. But he does have enough for a 25% deposit.
So he approaches the Islamic bank – and this is what happens:

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The bank buys the freehold title in the house at the closing of the transaction,
and it is its name that appears on the title. But the buyer gets an equitable
interest in the freehold by way of the contract (the DCA – more on that below)
and also gets a leasehold for 99 years alongside the bank. This leasehold can
only be sold or ended by the consent of the bank, but it does put the buyer on
a more secure and long-term footing than a shorter lease would.

Time passes, the Buyer continues paying rent and buying further equity in the
House until eventually he owns 100%.

At this point the Bank transfers over the freehold interest in the property to the
Buyer, the leasehold ends, and all charges in favour of the Bank are removed
from the charges register.5

5
N.b. we have used the Al Rayan model for the purposes of explaining the structure. Other banks’ structures may vary slightly.

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 HMRC is thankfully agreeable to only charging Stamp Duty Land Tax
(“SDLT”) once, and so SDLT is only payable upon the initial purchase of the
house, and not on the final transfer of the freehold by the bank.

Ijarah aka “rent-only” Islamic mortgages

This is the equivalent of the Home Purchase Plan apart from you don’t
buy back the bank’s portion. At the end of the mortgage, you either buy the
bank’s portion in full, or you sell the house to raise the money to pay the bank
back.

Murabaha

This kind of mortgage is often used in commercial property finance

structures by the Islamic banks (Al Rayan, Gatehouse, Al Ahli United, BLME
etc) including buy-to-let mortgages as well.

Murabaha itself is a simple concept. The bank buys the property on

your behalf, and then sells it to you immediately for a marked-up price, to be
paid over a number of years. For more details on this structure, see here.

However, certain Islamic banks, use commodity murabaha (also known

as “tawarruq”) to structure their commercial property financing transactions.
This is not ideal as an Islamic structure for reasons explained in this article. In
a nutshell, this kind of structure is only in line with the sharia in form, but not in
spirit.

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 Is an Islamic mortgage halal or haram?

Our view at IFG is that Islamic mortgages that are available in the UK
are halal, but there are improvements that can be made.

There are a bunch of questions/arguments raised around halal

mortgages, including:

1. They’re too expensive

2. The documentation and structure is basically the same as a

conventional mortgage

3. They use LIBOR – so they’re just using interest and disguising it.

Here are the reasons why we don’t think these are the real issues:

1. They’re too expensive

This is the most popular complaint about Islamic mortgages. What

people don’t realise however is that they are comparing apples and oranges.
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. It’s just not
comparable is it?

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 Any new company has startup costs associated with it, especially one
that is one of the pioneers in a new industry that is still testing out different
products and mechanisms. All that costs money.

Then you have the added problem that the current regulatory
framework is entirely designed for an interest-based bank. Did you know that
in the UK only one full bank license has been given out for 100 years? 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.

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. So for example they might
need to maintain 10% reserves. However Islamic banks, with their asset-
backed mortgages, are treated differently to conventional lenders with their
debt mortgages. As assets are illiquid they don’t count as liquid reserves,
while debt mortgages do. So in effect Islamic banks have to maintain higher
reserve levels and can’t give out very many mortgages as they’re much more
restricted than normal banks. Consequently it comes as no surprise that they
charge a higher price on the few mortgages that they can give out.

2. They have the documents which are worded in the same

way

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”.

But when you compare the legal structures against each other they are
very different. In an Islamic mortgage the buyer enters into a partnership
agreement with the bank and a rental agreement as well, along with a number
of other supporting agreements. In a conventional mortgage the primary
agreement is that of the secured loan, along with various supporting
agreements.

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. So it is unsurprising that there is some
crossover.

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 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. This is done for a reason: if a
past contract has been successful and perhaps been scrutinised in court and
withstood that scrutiny, then it is a good idea to model off that. Given the
centuries of perfecting that have gone into the conventional mortgage
contract, one can understand why Islamic bank lawyers borrow phraseology
from them.

This however is an area for Islamic banks to look to develop, if only to

improve customer perceptions. This is why we need more of our educated,
aspirational youth to be engaging in the Islamic Finance industry, be it from a
legal, financial, Shariah, or accountancy perspective.

3. They peg their mortgage to LIBOR and so they’re just

disguising interest

LIBOR stands for London Inter-bank Offered Rate. It's the rate at which
banks borrow from each other (yes, banks borrow from each other).

Islamic banks are operating in a regulatory system that is designed for

conventional banks. Part of this regulatory framework stipulates that banks
must advertise their products in a way that makes them comparable to other
products on the market. As all other banks use LIBOR and conventional
interest rate terminology to explain their pricing, the regulatory authorities ask

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Islamic banks to do likewise. This does not mean that they are actually
charging interest.

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? Of course. Just because the price of the juice is tracking
the beer price does not make the product itself haram.

“Ah but they don’t just use LIBOR terminology,” I hear you say. “They
actually price up the Islamic mortgage using LIBOR. So its not just price-
tracking, but actual interest involved.”

But now I think we’re overthinking things. Islamic banks such as Al-
Rayan and Gatehouse assure us that they are not getting their money from
haram sources such as borrowing it on interest themselves, and I think we
should trust them as long as they have scholarly approval.

However, interestingly, even if they were borrowing on interest and

then offering us a halal mortgage, that would be acceptable for us, though
haram for them of course. This is as our transaction with them is separate
from their other affairs. 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.
Of course that is not to say that they do, or that they should.

The real issues are as follows:

1. Islamic mortgage don’t share in ownership risks adequately

2. The contract does not use local rent values

3. Islamic banks “create” money just like normal banks do (and that’s bad
for the economy)

We deal with each of these issues in this article, an excerpt from which
is as follows:

1. They don’t share in ownership risk adequately

Islamic banking is supposed to be a fundamental paradigm shift from

lending to an individual where he is exposed to all the risk of the venture and
where the bank simply takes its fixed return, to a setup where the bank is

11
seen as much more of a partner in the venture and consequently shares in
the risk associated with the house.

Unfortunately four things seem to contradict this.

Firstly Islamic mortgages – at least those that are available in the UK –

ask the buyer to take out house insurance on the house so that everyone is
covered in the case an alien spaceship decides to land on the house.

Secondly, the Islamic bank also asks the customer to maintain the
house and make sure its general upkeep is done. Have a read of this Al
Rayan brochure which goes through their whole process. On Page 24 it lays
out the 5 different agreements that the customer has to sign up to. The one
I’m banging on about right now is the “Service agreement”.

Now if the Islamic bank owned 80% of the house say, then a common
sense understanding of house ownership and partnership in a business would
suggest that costs are split 80-20 when it comes to home insurance and
upkeep. But that currently doesn’t happen with Al Rayan. (It does however
happen with some other Islamic banks in other countries)

Thirdly, banks ask the customer to pay the stamp duty upon the
purchase of the house. Again this does look like the bank isn’t adequately
taking on ownership costs of the house. However I don’t think this is actually a
major issue as ultimately the customer does buy back the entire house and
should have to pay some stamp duty at some point. Perhaps, rather than
getting the customer to pay the stamp duty entirely, the bank should
contribute a minority sum towards it, say 20%, as they will after all own a
significant part of the house for over 15-20 years sometimes.

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 Fourthly, Islamic banks do not fully expose themselves to the vagaries
of the open market. When you become a partner in a taxi for example, and
you both invest £50 each, let’s say your partner gets you to promise you will
buy his share off him at £50 in a year’s time, regardless of the then value of
the taxi. Given this locked-in price your partner is in effect not risking very
much – he certainly isn’t risking loss.

In Islamic mortgage this locked-in pricing happens in the quarterly or

six monthly or annual buy-back of a stake in the house. The Islamic bank
agrees with you from the start that the house will be sold to you bit by bit at
the same price it as bought at by you right at the start of your mortgage. This
in effect helps you out, as house prices mostly rise, so if the bank was to work
out the market price for its 80% share it would likely be more than what you
bought it for.

But of course sometimes it can go in the bank’s favour. Let’s say you
want to sell and the house price has actually fallen below what you bought it
for. So let’s say you bought for £200,000 and owe the bank £160k.
Unfortunately the house is now worth only £150k. In this situation Al Rayan
say that they can refuse the sale, but if you really want to sell then you must
pay them back entirely. While this is acceptable in the letter of the Islamic law
again this doesn’t seem to me to partake properly and fully in the risk-sharing
of the venture. In fact all the scholars of all the madahib are unanimous that
loss-sharing must be shared, even if profits can be distributed in an unequal
manner.

2. The contract does not use local rent values

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 The Islamic mortgage uses LIBOR pegged values to work out rent,
instead of working out what the local rent would be for the property. This is not
ideal however two important things have to be said in defence of this: (a) the
Islamic banks usually charge less in rent right now than they would if they
charged the local rental value. So in effect the customer is quids in with this
practice. (b) It would be quite a task to quarterly or biannually work out new
local rent rates for each of the thousands of mortgage properties that the
banks will have on its books. So from a practicality perspective this would be
difficult.

3. Fractional reserve banking and money creation

This issue I feel is often one that slips under the carpet as most people
discussing Islamic finance often do not have an economics background.
Unfortunately the reality today is that 97% of our money supply is created by
private interest-dealing banks who simply pop money into existence. You can
find out more about how all this works here. Islamic banks too unfortunately
operate on this system from the basic research I’ve been able to come across
on this subject here and here. What this means is that banks are essentially
creating money out of nothing. This goes against the well-established Islamic
principle “do not sell that which you do not have”, and raises all sorts of major
macroeconomic problems that I won’t go into here. Suffice to say that
fractional reserve banking screws up the economy, causes inflation, and puts
money supply in the hands of an unelected elite group of bankers.

So if UK Islamic banks also operate according to these practices, and it

is highly likely they do, then this is another serious problem with Islamic
banking.

If you’d like to know how we propose addressing these issues, read

more here in this article. Gatehouse Bank also have an excellent FAQ here.

In the next section we look at the types of halal mortgages out there.

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 Types of Halal Mortgages

Alongside the standard Home Purchase Plan (“HPP”) product there are a
number of other products that you should be aware of.

 Help to Buy Scheme Alternative

Al Rayan used to offer a Help to Buy Islamic mortgage in the UK

however, following the closure of that scheme in 2016 by the Government, Al
Rayan have launched a 5% deposit HPP to help those with smaller deposit
sizes.

 Right to Buy Scheme

As far as we know, no Islamic Bank is currently offering assistance with

an Islamic mortgage for a right-to-buy scheme property purchase.

 Buy to Let Islamic Mortgage

There are several Islamic mortgage providers in the UK who offer a

buy to let mortgage. These include Al Rayan, Gatehouse and Al Ahli. BTL
Islamic mortgages are also particularly appealing because they don’t have an
early repayment penalty. That means you can quickly pay back a big chunk of
the mortgage and drastically reduce the monthly repayment amount. With

15
conventional mortgages you can’t always do that without having to pay hefty
fees. This works quite well or expats who often go abroad for a number of
years, earn their money, and then repatriate a big chunk of money in one go.

 Alternative-to-a-mortgage products

There are a growing number of companies in the UK that are trying to

challenge the Islamic (and mainstream) banks by catering for those
customers who may not necessary qualify for a full Islamic (or conventional)
mortgage.

So for customers who may not have worked for 6 months in a

permanent job, or who are self-employed without 3 years’ worth of accounts,
these alternative companies can be really useful.

They do tend to charge more as the way they’re usually structured is

that they take a equity share in the house alongside you and charge market-
rate rent on their portion. You don’t have to necessarily buy back their portion
of the property either. Typically we would see that their rates are more
expensive than even Al Rayan’s 95% FTV product (which is the most
expensive Islamic mortgage product out there). The reason they’re more
expensive is that, unlike Islamic banks, they don’t insist on having a
mechanism for you to buy the property back from them and so they are
exposed to property risk in a much more proximate way as they could end up
holding a big chunk of property for a long duration. Also, the risk profile of
their customers is usually higher (as, after all, they couldn’t qualify for an
Islamic mortgage with a mainstream bank).

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 Best Islamic Mortgages in the UK in 2020

In this article we outline a full list of all the Islamic mortgage UK

providers right now. You should also consider our Islamic mortgage
comparisons page.

 But in short the following banks no longer offer Islamic

mortgages: HSBC, Lloyds, and Al Buraq.

 The following banks do offer Islamic mortgages: Al Rayan (formerly

Islamic Bank of Britain), Gatehouse, Al Ahli, and Heylo Housing
(though they are an alternative mortgage provider and not strictly
speaking a bank).

So what is the “best” Islamic mortgage in the UK right now? Well

there’s no straightforward answer. If you have a solid financial profile (e.g. you
are a professional with a decent salary) then with a good-sized deposit you
should be looking at Al Ahli (if you’re buying in London) or Gatehouse as they
generally have the cheaper rates right now (because they’re trying to take
market-share from Al Rayan). But if you have a more complex financial
situation, Al Rayan can often be more forgiving than the others when it comes
to underwriting and credit checks. They also allow you to have a deposit of
just 5% too.

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 A “cheap” Islamic mortgage is also not just one that has the lowest
initial rate. Do your full sums, including all the fees and SDLT as well as what
you might have to pay when you sell the house and/or make accelerated
payments. Each of the banks charge slightly different fees, and it also
depends on the property you’re purchasing, so you should run the numbers
fully yourself.

In terms of customer service, none of the Islamic banks are amazing,

but they’re all competent enough – if a bit slow. Al Rayan has the largest
number of physical branches across the UK if that’s your thing. With the
introduction of the IFG Comparison page, we would expect the customer
service levels to improve as competition and transparency improves.

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 15 Tips to get a Cheap Islamic mortgage

Mortgages, and particularly Islamic mortgages, are an expensive

business. But if you look in the right places and make the right moves, you
can drastically cut your eventual outlay by thousands of pounds. Even if you
use just a couple of the points below successful, you will be able to make that
saving.

Tip no. 1: take advantage of the help-to-buy scheme

Set up a Help to Buy ISA and save £200 monthly. For every £200 you
put in, the government will contribute £50. You can get a maximum
government payout of £3000 if you slowly save up to £12,000. And if you get
your spouse to do it, that’s £6000 free money!

And yes, a Help to Buy ISA will earn you interest. This is not ideal, but
our considered view on this having taken a mufti's view too is that it is okay in
this instance to give away the interest, particularly if you are otherwise going
to really struggle to save that money. And even if you give all the interest
away, the government bonus is so lucrative that it's still worth it.

Find out more on this scheme here.

Tip no. 2: use the IFG Comparison Tool

Use our mortgage comparison tool. It is the only Islamic mortgage

comparison tool available for the UK market and is kept fully up-to-date.

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 The first thing you should screen for are your “Finance to Value” or
“FTV” amount which will depend on how much of a deposit you have. So if
you are buying a £400k house and have a £80k deposit, you can access all
the Islamic mortgage products that are 80% FTV or above and our
comparison tool will narrow down what you’re eligible for.

The other thing to screen for is whether you will opt for a fixed or
variable rental rate. This will depend in part on your views about where the
interest rate will go in the coming years (we at IFG think it’ll go down or stay
low, due to Brexit). If you think it’ll go down or stay the same, you should
probably think about a variable rate package. But if you need certainty in your
life and to manage cash-flows, then a fixed rent makes sense.

We also allow you to easily compare between the rates offered by

different banks too – so you can see in the round who actually is cheapest.

Extra tip: the cheapest bank isn’t always the bank that has the lowest
headline rental rate. All the other fees and expenses add up very quickly.

Tip no. 3: keep in mind that you can refinance later

This is an important and oft-overlooked point. I personally took out a

very long term on my mortgage (30 years). This is generally advised against
by sharia-compliant banks on the basis that you’re committing to pay a ton
more money than you would if you only had a term of 10-20 years.

20
 But my analysis was that, as I am young, I’ll build up a lump-sum to
quickly reduce the mortgage in a few years’ time, the returns I make from the
lump-sum will likely be more than the savings I would make by increasing my
deposit/reducing the term, and right now I want to have the flexibility of a low
monthly payment.

Overall, I’ll pay a bit more over the term of the Islamic mortgage – but
only if I actually stay the term out. If I don’t and refinance to a cheaper and
shorter term after the fixed rate ends instead, I’ll be roughly in the same
situation as someone with a much shorter mortgage.

Tip no. 4: use an Islamic mortgage broker

Islamic mortgage brokers are very useful for a few reasons.

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 Firstly, they will have a better sense of the overall market than you and
so will be able to more quickly get you to a good deal – though, with the IFG
comparison launched, the value of this market knowledge is considerably
reduced as you can just come on here and get the same data for free.

Secondly, Islamic banks are sadly often over-worked and not very
customer friendly. The thing that takes ages is the back-and-forth in getting
the documentation together. If your broker will be doing that process for the
bank, chances are your application process will be a lot smoother. In a
nutshell, I would put my money on a broker doing a better job of quickly
getting the mortgage application together rather than someone in-house who
hasn’t got as much of an incentive.

Islamic mortgage brokers can and do charge for advice at times. But
you can also find Islamic mortgage brokers who will just get paid referral fees
by the Islamic bank upon successful completion of a property purchase. You
should try to find these kind of brokers as they’re cheaper and offer the same
service. IFG will shortly be offering such a service (so subscribe so you hear
about it first!).

Thirdly, halal mortgage brokers do have personal relationships with

people at Islamic banks and that can sometimes help get a deal through that
might otherwise get stuck. But don’t rely on this too much as Islamic banks
have strict internal underwriting guidelines to stick to and any exception will be
relatively rare.

Fourthly, some Islamic banks actually give better rates if you come
through a broker. This is because a broker will have done a lot of the work for
them already, so they save costs. If you’re going with Al Ahli in particular, this
could be a clever move that could shave off a thousand or so.

22
 Tip no. 5: keep an eye on Stamp Duty Land Tax (“SDLT”)

Make sure you factor in SDLT into your budget – especially if you’re a
first-time-buyer and are buying a property worth above £300,000. You will
need to pay SDLT for the value of the property above that price and it can add
up into the tens of thousands. Here is a link to the latest SDLT rate bands.

This can actually be a blessing in disguise, as you can use it as a

negotiation point if you’re buying a house around the £300k mark.

Tip no. 6: shop around for solicitors

You should always ring a few of the solicitors up that are on the panel
of any Islamic bank. They will vary considerably in price.

You are particularly incentivised to use the Al Rayan panel solicitors as

Al Rayan promise to basically pay their own solicitors’ fees (about £500) if you
use a panel solicitor. If you don’t, then you’ll have to pay the Al Rayan
solicitors’ fees.

For Gatehouse and Ahli, you have flexibility to choose your own
solicitor, and you will just have to pay the bank’s solicitor’s fees. So this is an
additional cost if you go with Ahli/Gatehouse.

23
 We personally use IKON Law in Birmingham whom we have used for 2
transactions and found to be super-responsive and super cheap. They are on
the Al Rayan and Gatehouse panels.

One useful tip that we got from conducting an in-house survey of our
audience was that some savvy shoppers negotiated with their solicitor to bring
the cost down. So don't just take their first quote and pay it – it's well worth
asking for some movement on price!

Tip no. 7: get home buyer insurance

Let’s say you’ve had a successful offer and have instructed solicitors
and started the Islamic mortgage application process. This is the point where
you could end up losing significant amounts of money if the deal were to fall
through as you will have to pay solicitors, bank fees etc.

Given that a significant number of deals fall through even at this stage,
you should look to protect yourself by taking out home buyer insurance such
as this one. It will save you thousands of pounds if things don’t work out as
planned. We learned this the hard way.

And if you’re thinking – “Is insurance halal?” then see our article on this
here.

Tip no. 8: save time by searching efficiently using clever tools

24
 You will waste an incredible amount of time in your house hunt. You
have to narrow down where you’re looking for, what you’re looking for, who
the best bank is, calling estate, attending viewings etc.

Thankfully there is a company that considerably speeds up that whole

process and actually shortlists houses that will be ideal for you.

Searchsmartly use their proprietary artificial intelligence engine to

screen through its reams of properties for sale and narrow down, based on
your particular needs, the perfect house for you.

Saving time = saving money. Use them.

As a side note, SearchSmartly are an exciting start-up we invested in.

If you want to access start-up deals that we invest in too, join our IFG Angel
Investor list.

Tip no. 9: look for houses that are undervalued or have a

motivated seller

Use this Chrome extension that allows you to see the historic price of
listed houses on Rightmove. This is pretty useful as estate agents know that a
listing that has been on for ages doesn’t look good or sell easily. So they keep
refreshing and creating new listings of the same old property. This extension
helps you quickly cut through all that and give you detailed price history of the
property.

Look for probate sales. These are usually motivated sellers and are not
interested in keeping the property or getting the absolute last penny of profit
out of the property.

Also check out swirb.com (but more on that later).

Tip no. 10: ask good questions during home viewing

A home viewing is a research expedition not just on the house, but also
the sellers, the history of the property and the deal and any other nugget of
information that will improve your negotiation position. Because you see,
negotiation is mostly about having all the information you need to make a
good offer. But most people rush things or don’t ask the right questions.

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 These are the essential questions you should be asking during a
viewing:

What is the reason for sale?

Where are you moving to?

How long have you lived here?

What are plus points and negative points to this house?

Have there been any offers?

What were the offers?

Are you in a chain?

What price are you realistically looking for?

How long has the house been on the market?

Have you had any building work done?

Don’t worry if you don’t get answers to all of these questions. A

sensible seller won’t answer some of these. But it is surprising how often
people will answer most if not all of these questions – and then you are in a
much stronger position to make an informed offer.

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 Tip no. 11: move quickly

This is actually a tip for life. Generally a thing done with momentum
achieves better results than one that is left to meander.

So move quickly on a property you like; get your Islamic mortgage

application in quickly; instruct solicitors quickly; and get the house bought
quickly!

To give an example, we had an offer for a house accepted before we

even had the full deposit together. But the bank we went with were
comfortable that within 2 months (the time it will take for the transaction to
complete anyway) we would have made the necessary savings to have the
needed deposit amount.

So that enabled us to purchase the house quicker and move out of

rented accommodation quicker.

Tip no. 12: look for a house you can add value to

Look for a house you can do low-cost but high-value things to. So for
example, an extension can add a lot of value and is relatively cheap, while a
swimming pool is very expensive and massively reduces the buyers for the
property and doesn’t add as much value. And where the changes are
cosmetic, and the structural work is minimal, you could be onto a winner.

Tip no. 13: location, location, location

The crucial thing with location is that you want to find a place that is
currently cheap, but, for some reason, will rise in price soon.

So look for major infrastructure projects nearby so that the house

appreciate in value over time. For example check out this incredible Crossrail
tool that shows you where prices will rise along the Crossrail route.

A slightly whacky idea but quite successful as a strategy: look for areas
with coffee shops on the rise and chicken shops on the decline – again house
price will increase. Check out here for more info on this strategy.

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 Tip no. 14: refinance as soon as your discount period ends

You should look to refinance as soon as the “discount” period is over

and you’re switched onto the higher rate of monthly payments. There are now
plenty of Islamic banks who can help you. Especially if you save up during this
2-3 year discount period, you can then access the much cheaper 65% FTV
Islamic mortgages from the likes of Al Ahli which you previously couldn’t (as
you didn’t have the necessary deposit amount).

Tip no. 15: use mortgage calculators and affordability calculators

Use Islamic mortgage calculators religiously (pardon the pun) such as

this one. The benefit of using this regularly during your house hunt is that you
know exactly what you can afford, how much it will practically cost month-to-
month and as a deposit.

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 Wider Islamic Financing in the UK

Other than the retail Muslim mortgage market, there is also a strong
bench of corporate banks who deal with corporate clients. These include
BLME, QIB, and then of course Al Rayan, Gatehouse and Al Ahli also
participate. When you get to deal sizes north of £10-20m, then it becomes
financially viable for a mainstream bank to do a bespoke Islamic financing
transaction as well. If you’re in need of such a level of financing, drop us an
email (ibrahim@islamicfinanceguru.com) and we can pull a few strings for
you.

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How to get an Islamic mortgage in the UK

The main barriers people face to getting a halal mortgage in the UK are
the following:

 They are looking for too expensive a property. Usually Islamic

banks only offer x4-4.5 of your annual salary as an Islamic
mortgage. The deposit you have to provide would make up the
remaining amount of the property price.

 Which brings us onto the next thing. If you don’t have a sufficient
deposit, that’s a deal-breaker. And bear in mind you might have
enough for a 5% deposit, which will get you into the door at Al
Rayan, but the size of house you’re looking for might mean that
overall your monthly repayments are so large that it wouldn’t be
affordable.

 You are self-employed. Islamic banks (and mainstream banks)

often can ask for up to 3 years of annual returns before they are
comfortable that you can pay for your Islamic mortgage.

 You have been employed less than 6 months or are on

probation or in your notice period. Islamic banks want to finance
people who are in a stable job.

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  You are buying a renovation property so badly dilapidated that
an Islamic bank can’t finance you under a residential Islamic
mortgage for that. You’ll have to explore other options for that.

 You have an extremely bad credit history – this one is obvious!

If you think you’re ready to get an Islamic mortgage, please visit our
comparison page, narrow down what product is right for you, and get started
on the process!

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 Islamic mortgage UK Reviews

We regularly review and hold to account Islamic mortgage providers by

providing detailed reviews of their products.

Here are our current list of reviews (which are constantly expanding
and being refined):

 Al Rayan

 Gatehouse – coming soon

 Al Ahli – coming soon

 Heylo housing – coming soon

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Islamic Mortgage Guidance and Resources

Here are a list of themed resources we find particularly useful:

Help in finding a great house

 Searchsmartly – they are really helpful in using artificial

intelligence to narrow down great houses available to buy right
now in the market dependent on your particular tastes and
needs. This massively cuts down the headache of narrowing
down properties.

 Swirb – these guys are great in that they allow you to see where
a property has dropped in price and/or is going well below the
market rate. Who doesn’t want to buy a cheap property?

 Crossrail tool – this tool is great if you’re living in London and

looking to buy in a location which will benefit from an uplift in
price after Crossrail opens. It helps you pinpoint those places
where the expected uplift in price is expected to be greatest.

 The coffee/chicken shop heatmap – This tool uses an

interesting strategy. It looks for an increase in coffee shops and

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 a decrease in fried chicken shops. Usually this trend aligns with
the gentrification of an area – and that also means it is an area
that is increasing in price rapidly.

Islamic Bank UK Mortgage Calculators

Here is a direct link to the various Islamic mortgage calculators listed

on the Islamic banks’ websites:

 Al Rayan calculator

 Gatehouse Home Finance Calculators

 Gatehouse Buy-to-Let Calculators

Here are a few other very useful general calculators you can use to run
the numbers when you’re looking to take out an Islamic mortgage.

 The Money Saving Expert calculator

 The Money Advice Service calculator

Islamic mortgage brokers in the UK

There are not many mortgage brokers who are qualified or experienced
to deal with Home Purchase Plans//Islamic mortgages. But here are a few:

 Strideup – these are our broker of choice. We really rate these

guys because of their focus on really making the customer’s life
simple and easy. One of the big pain points when going through
an Islamic mortgage application with an Islamic bank is how
slow and annoying the document-gathering and review process
can be. But if you use someone like Strideup, that can
dramatically decrease your stress levels during that bit of the
application process!

We have teamed up with Strideup to offer the UK’s first Islamic

mortgage comparison site. When you click through on any of the
leads, the guys at Strideup will be taking care of you.

 Halal Options – They are based up in the North West, are

experienced and are generally well-regarded.

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