The scheme was launched today and will enable Sharia compliant banks, such as IBB, to offer UK Muslims affordable home finance.
IBB’s support to the Government for the scheme was headed by Samir Alamad, head of Sharia compliance and product development.
He said: “The launch of the Help to Buy: HPP guarantee scheme represents an important step for the UK Islamic finance industry. By adapting the original mortgage guarantee scheme, HPP providers and customers can benefit from the same Government support that mortgage lenders and borrowers have enjoyed. It has introduced a level playing field for Islamic banks and consumers alike and IBB is delighted to have been working closely with the Government to pioneer this exciting development.”
The financial secretary to the treasury, Sajid Javid, added: “I am delighted Home Purchase Plans will now be available under the Help to Buy scheme. This gives even more choice to hardworking families across the UK trying to fulfil their home owning aspirations.”
HPPs are Sharia compliant, ethical mortgage alternatives, available to consumers of all faiths and beliefs. They differ from a mortgage where the customer borrows money from a lender which is then repaid with interest. A HPP uses the Islamic finance principles of co-ownership (Diminishing Musharaka) with leasing (Ijara), where the Islamic bank and the customer buy the property as partners and the customer pays rent on bank’s share in the property. At the end of the term, when all acquisition payments have been made and the finance has been settled, ownership of the property transfers fully to the customer.
The Help to Buy: HPP guarantee scheme works in a similar way to the Help to Buy: mortgage guarantee scheme, but takes into account the different way that a HPP is structured. It will enable banks to purchase a guarantee for their Home Purchase Plans where the consumer has a deposit of between 5% and 20%. The guarantee will compensate the bank for a portion of net losses suffered in the event of default. This will reduce their risk of offering home finance to consumers with a low deposit. The original scheme was launched in October 2013 in order to increase the availability of low-deposit finance for UK households.
IBB estimates that there are about a million UK Muslims adults with a need for its savings and home finance products, who are also inclined towards Sharia compliant finance. Recent, independent research conducted by 2Europe for the Bank also reveals that 81% of Muslims either currently use or would consider using Islamic finance. This is backed by figures from the 2011 Census of England & Wales which identified that the UK is now home to 2.7m Muslims, up from 1.5m in 2001. It is the UK’s second highest religion behind Christianity and ‘no religion’.
Islamic finance offers consumers a different approach to banking. It operates entirely without the main instruments of the conventional finance sector, including interest and speculative products. The whole premise of Islamic finance is to provide a way for society to conduct its finances in a fair, ethical and socially responsible manner. IBB was formed in 2004 and has attracted over 50,000 customers