I was reading about Islamic mortgages becoming even more mainstream just this week. I studied the subject several years ago as part of my property training, and decided to revisit. Before I go any further, I must stress I am not a mortgage broker, and neither am I am property sales agent, I am quite happy simply being a Lettings Agent. Therefore if you want to explore Islamic mortgages further, please consult a qualified mortgage broker. At the moment, houses are predicted to enjoy a bull run for the next 4-5 years with average values predicted to rise by around 21.5%. So, if you’re buying, well worth exploring the advantages and disadvantages of Islamic mortgages. See More:
One would be forgiven for thinking these mortgages are exclusive to the Islamic community. But they are also available to non-Islamic Landlords. Experienced Landlords have known they have had that option for years.
For all of them, you would be expected to have a deposit of 20 to 25%, and to set the rent, they use LIBOR (London Interbank Offered Rate) guidelines, which could be more or less than the local market rent, so watch out for that. They are FCA regulated and many, if not most, of the non-Islamic banks and mortgage brokers in the UK also offer these products. As with conventional mortgages, you still have to pay legals, insurance and property maintenance expenses for the duration. The most popular three products are mentioned below, but there are also other products to choose from.
Generally when you take one out, you agree to pay back to the Lender the purchase price through fixed monthly payments, usually over 25 years plus a certain amount of rent per month which will decrease yearly as the outstanding mortgage decreases over time. The main attraction is that you don’t have to pay interest on a loan.
The 3 most popular types are: Diminishing Musharaka, Ijara and Murabaha. In brief, the Diminishing Musharaka is a joint purchase agreement between your Islamic bank and yourself, you pay off in monthly instalments meaning as time progress you own more of the property and the lender owns less.
Ijara means that your monthly payments are divided into 2 categories, some of it goes on rent and some of it goes against capital to finance your final purchase. Your level of ownership stays the same throughout the duration of the mortgage.
And then Murababa is geared slightly more towards commercial property purchases, and not used often for residential purchases. Your provider buys the property and sells it to you at a slightly higher price which you pay down monthly over a period of time.
Other News in Brief:
Commercial evictions ban has been extended to 30 June, and residential evictions ban has been extended to 31 May in order to protect tenants. These bans were introduced as a result of the Coronavirus Act of March 2020, and so far, they have kept extending them.
The Government have initiated a campaign called “Make It Right” this week which is aimed at encouraging social housing tenants to complain to the Housing Ombudsman if they feel their Landlords are providing sub standard living conditions or not doing repairs. The comedy element here is, that it is well known within the industry that the majority of private rental sector Landlords provide a far superior service to their tenants than their social housing counterparts.
Generation Rent are campaigning against the latest extension of the eviction ban saying it is not enough. While the National Residential Landlords Association have criticized the Government for encouraging rent dodgers, by extending the evictions ban.
A young lady called Larissa Kennedy, President of the National Union of Students, thinks Landlords have been treated better than tenants during the pandemic. Wrong! Along with many small business owners they have been totally neglected by the Government. She uses the stamp duty holiday as an example, which has nothing to do with Landlords who, in some cases, have been unable to evict non-payers since 2019. She also mentions the mortgage payment holiday. Hopefully somebody will tell her that these missed payments will still have to be paid back at the end of the term with added interest.