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What is a halal home purchase plan?
A halal home purchase plan (HPP) is a financial product aimed at helping Muslims buy a house without the need to borrow money. Read our guide to discover more.
*Please be aware MoneySuperMarket doesn't currently offer Halal home purchase plans.
Your mortgage is likely to be your biggest financial commitment, so shopping around for the best deal is vital. We can help by comparing thousands of products from a wide variety of lenders, covering the whole of the market. This way, you can be confident you’re getting the right deal.
*Please be aware MoneySuperMarket doesn't currently offer Halal home purchase plans.
Mortgages are interest-bearing by their very nature, meaning they’re prohibited in the Muslim faith. For this reason, it is fair to say that Muslims in the past have struggled to find ways to get a foot on the property ladder.
A halal home purchase plan, on the other hand, isn’t a mortgage at all. Of course, you will still have to pay back in instalments whatever loan you decide to take out. But the main difference with a standard mortgage is that a halal home purchase plan doesn’t require the borrower to pay interest, which therefore makes it Sharia compliant.
An Islamic or halal home purchase plan is often a popular option because borrowing and lending money in exchange for interest is forbidden under Sharia law.
Halal home purchase plans are now available from a variety of providers and, like ordinary mortgages, are regulated by the Financial Conduct Authority (FCA).
As the buyer, you will enter a contract with your seller and find an agreement that suits you both. But the crucial difference is that a halal home purchase plan doesn’t involve borrowing money.
Under a Sharia-compliant home purchase plan (HPP), your bank will buy your property on your behalf. Bear in mind that you may be asked to pay a deposit between 10% and 35%. Then, your bank will either lease it back to you or levy a profit on top of the purchase price.
This, in turn, will allow you to pay back the sum total in instalments. Once you have finished paying all your instalments, you will become the sole owner of the property. Up until then, it’s the bank that owns the house.
Whichever type of HPP you choose, your provider will make money. However, they’ll do so in a way that is in line with Muslim teachings.
When it comes to Sharia-compliant home purchase plans, there are different types of Muslim mortgages you can choose from. These include:
Ijara – this is when the bank buys the property and then rents it to you. This will usually be at an agreed monthly cost. At the end of your fixed term, and once you’ve paid all your instalments, you will become the full owner of the property
Murabaha – this is when the bank purchases the house and then sells it back to you at a heftier price. However, you will repay the higher price in equal instalments over an agreed term
Musharaka – this is when you and the bank own a separate share of the house. However, each time you make a repayment, not only will you buy more of the bank’s share, but you will also reduce the cost of your instalments
Generally speaking, yes. Halal home purchase plans are often more expensive than traditional mortgages.
This is because, at first, the Sharia-compliant lender needs to pay higher administration fees. What’s more, HPPs are not as popular as traditional mortgages, meaning that there are fewer options available on the market. Less competition equals pricier costs.
It is also worth noting that you will be asked to put down a deposit, which usually ranges between 10% and 35%. With non-Muslim mortgage options, instead, you can sometimes find lenders who are ready to offer you 95% mortgages, which only require a deposit of 5% of the house value.
As always, though, each lender has their own set of terms and conditions. So, make sure to sift through all the available deals and pick the one that best suits your personal circumstances.
As mentioned, MoneySuperMarket doesn’t currently offer halal home purchase plans. That said, you needn’t worry.
HPPs are available from a variety of providers, including Al Rayan Bank (formerly known as the Islamic Bank of Britain) and UBL UK.
If you’re not quite sure what option may be the right one for you, you could get in touch with a mortgage broker who has experience of Sharia banking. This way, you will be able to navigate through the different deals available on the market and select the halal home purchase plan that fits your needs and pockets.
Finding a better deal for your mortgage is simpler when you compare mortgages online at MoneySuperMarket.
You just need to give a little information about your borrowing requirements, such as how much you need and over how long, as well as the price of your property. You’ll then be able to compare various quotes from different providers by their initial monthly cost and interest rate, the overall cost of the mortgage, and whether there are any fees included as part of the deal.
The comparison tool won’t take into account your financial situation or your credit history, so the interest rate deal you’re offered on your tracker mortgage may be different to the quotes you see.
