Several Shariah-compliant strategies are commonly used for Islamic mortgages in the UK. These strategies are structured to adhere to Islamic principles and avoid interest (riba). Some of the common Shariah-compliant mortgage strategies used in the UK include:

Ijara Muntahia bi al-Tamlik (Lease to Own):

Under this arrangement, the Islamic bank or financial institution purchases the property and then leases it to the homebuyer for an agreed-upon period. The homebuyer pays rent to the bank which covers the capital payment paid by the bank and their profit margin. At the end of the lease term, the customer will enter into another contract with the financial institution of buying the property for a nominal fee. In other variants of this structure, the financial institution can gift the property to the customer.

Diminishing Musharakah

In this structure, the bank and the homebuyer become joint partners in the property. The bank contributes a portion of the property's cost, and the homebuyer makes a down payment. Both parties share the ownership of the property according to their respective contributions. The homebuyer then makes regular payments to the bank, which includes a portion of the rent for the bank's share and a portion that goes towards buying out the bank's ownership share. Gradually, the bank's ownership share decreases, and the homebuyer becomes the sole owner of the property.

Murabaha (Cost-Plus Financing):

This structure involves the bank purchasing the property initially and taking ownership, thereafter, selling it to the buyer at a marked-up price. The buyer then pays the bank in instalments, which include both the original price and the bank's profit margin. This method is commonly used for property financing.

To discuss your Islamic property financing needs, speak to Blackstone Wealth today.