Although compliant mortgages already exist, various legal hurdles make them relatively expensive. But with three million UK Muslims, there is a significant potential market for Islamic mortgages.
An independent working party convened under the auspices of the Governor of the Bank of England and chaired by Andrew Buxton, former chairman of Barclays Bank, was set up to highlight these issues and find ways to broaden choice in the mortgage market. Members of the working party and the CML will shortly be meeting with the Financial Secretary to the Treasury, Ruth Kelly MP, to seek ministerial support for implementing regulatory changes. They are calling for the Government to take steps to amend legislation where necessary to put Islamic mortgage finance on a more equal footing with conventional mortgages.
In Islam, the payment or receipt of interest is strictly forbidden. Islamic mortgages rely on the involvement of a financier who buys the property, and then sells it on to the buyer and collects instalment payments (similar to traditional mortgage payments) for the repayment of the capital. Instead of charging interest, the financier either sells the property on at a higher price, or sells it for the same price but then charges additional rent on the property for a specified period of time. One of the main problems is that Stamp Duty is therefore charged twice, as the ownership of the property transfers twice - once to the financier, and once to the ultimate buyer. This is reflected in the price of the mortgage finance.
Commenting on the situation, CML Director General Michael Coogan said: “Regulatory changes would make it easier and cheaper for Muslims in the UK to get mortgage products which do not conflict with their beliefs. This would in turn help to make home-ownership more accessible and affordable for the UK’s most significant religious minority.”