Sharia Law Mortgages

Shariah-compliant mortgages distinguish themselves from traditional financial products in their foundational principles. They operate devoid of riba, ensuring the absence of interest-based transactions. Many of our partnered lenders employ the Diminishing Musharakah model, seamlessly blending the tenets of Islamic finance with property acquisition.

Instead of a standard interest-based loan for buying a property, with an Islamic buy to let mortgage, the bank and customer jointly invest in the property. They both chip in, proportionate to their financial contribution. The customer then rents the bank’s portion of the property, making monthly payments. Initially, the bank holds the title, but as the customer continues to make payments, they gradually acquire the bank’s share. Once all payments conclude, the customer becomes the sole owner.

In the realm of Shariah finance, this progressive stake-buying is termed Diminishing Musharakah. “Musharakah” is Arabic for ‘joint venture’, encapsulating the essence of this property finance system.

Just like conventional mortgages, there are two Diminishing Musharakah flavours:

1. Acquisition Diminishing Musharakah:

Both customer and bank jointly invest in purchasing or refinancing the property. Throughout the term, the customer pays both a monthly amount towards buying the bank’s stake and rent for using the bank’s portion. Gradually, the bank’s share shrinks, while the customer’s share inflates. At term’s end or upon early completion, the title is handed over to the customer.

2. Rent-Only Diminishing Musharakah:

Again, both parties join hands in property investment. Yet, here, the customer’s monthly payments are strictly rent. The customer maintains their original stake throughout but has an option to purchase portions of the bank’s share periodically. They can even buy out the bank’s entire share anytime. Once the bank’s share is entirely bought, the title goes to the customer.

Customers need to ensure they have suitable financial plans to buy out the bank’s share at the end of the term, on application, the team at Mortgage Lane will discuss this with potential applicants of Islamic buy to let mortgages

Opting for an Islamic mortgage through Mortgage Lane entails entering into a co-ownership agreement. In this setup, the sharia finance company might appear as the legal owner on land registry records, but they don’t maintain beneficial ownership rights. One of the compelling attributes of these financial avenues is their frequent lack of exit penalties, affording you a fluid and adaptable investment journey.

No

In the past, certain lenders imposed a minimum income requirement for Buy to Let mortgages, but this is increasingly less common. While a few may still have such requirements, it’s important to note that there are ample options available for those earning below £25,000, especially in the realm of Sharia-compliant mortgages. Our team specialises in navigating these options to find a solution that aligns with both your financial situation and Islamic finance principles

We assist our clients with buy to let mortgages in England, Wales, Scotland and Northen Ireland.

Just as with residential mortgages, there are also lenders in the Sharia-compliant buy-to-let mortgage market who accommodate applicants with adverse credit. So, whether you have experienced missed payments, CCJs, defaults, or even an IVA, Mortgage Lane can assist in sourcing a suitable Sharia-compliant buy-to-let lender for you.

Sharia-compliant finance takes a holistic view of an applicant’s financial situation, and while credit history is a factor, it’s not the only consideration. Mortgage Lane understands these unique requirements and can guide you towards lenders who are more accommodating of various credit histories.

For those who have been discharged from bankruptcy, the landscape of options in Sharia-compliant financing typically improves after 3 years, and even more so after 6 years. With our expertise in Islamic finance and extensive network of lenders, Mortgage Lane can help navigate these options, ensuring that the solutions we find align with both your financial needs and the principles of Islamic finance.

It’s important to remember that every lender has different criteria, and the approach to adverse credit can vary. By working with Mortgage Lane, you can explore a range of Sharia-compliant buy-to-let mortgage options tailored to your unique circumstances, even in the presence of credit challenges.

Yes.

In the context of Sharia-compliant buy-to-let mortgages, some lenders who cater to first-time buyers may impose limits on the loan size, tying it to the maximum affordability of a standard residential mortgage. This practice helps lenders mitigate the risk of what’s known in the industry as “back door buy to lets”—a situation where applicants may try to leverage buy-to-let mortgage affordability rules to obtain a larger loan than they might otherwise qualify for in a standard residential mortgage.

However, there are strategies to navigate these limitations, particularly for those new to property investment. One such approach is initially purchasing the property using a Sharia-compliant bridging finance option, then refurbishing the property and subsequently refinancing as a “property owner” rather than as a first-time buyer. This pathway can potentially offer greater flexibility in terms of loan size and investment strategy.

Mortgage Lane, as a specialist in Sharia-compliant financing, can assist in exploring these options. We understand the nuances and specific requirements of Islamic finance and can guide you through the process of securing appropriate financing. Whether you’re a first-time buyer or looking to expand your property portfolio, Mortgage Lane can help find a solution that aligns with both your financial goals and the principles of Islamic finance.

It’s important to remember that each financing option, whether it’s a standard buy-to-let mortgage, bridging finance, or a refinancing solution, needs to adhere to the principles of Sharia law. Mortgage Lane’s expertise in this area ensures that your financing solutions are not only compliant but also tailored to your unique investment needs.

Yes, Sharia compliant lenders do allow for product transfers. A product transfer is an option typically used when your fixed-term mortgage deal expires. It involves switching from your current mortgage product to a new one offered by the same lender. This is often done to secure a more favourable rate or different terms that better suit your current financial situation or to align with the evolving offerings in Sharia-compliant finance.

One of the primary reasons for considering a product transfer at the end of a fixed-term is to avoid reverting to the lender’s standard variable rate, which might be higher. By transferring to a new product, you can potentially benefit from lower interest rates or more suitable terms.

Additionally, product transfers can help you avoid the upfront costs associated with remortgaging, such as valuation fees, broker fees, and legal fees. Since you’re staying with the same lender, the process is usually more straightforward and less costly compared to remortgaging with a new lender.

However, it’s crucial to assess whether the new product continues to meet your financial needs and remains compliant with Sharia principles. This is where the expertise of a broker like Mortgage Lane becomes invaluable. We can provide guidance on the range of products available from your current lender, helping you make an informed decision that aligns with both your financial goals and Islamic finance principles.

In summary, product transfers with Sharia compliant lenders are a practical solution when your fixed-term mortgage expires, offering a way to adapt your mortgage arrangement without incurring the additional costs and complexities of remortgaging with a new lender. Seeking advice from a specialist broker like Mortgage Lane is advisable to navigate this process effectively.

Yes, Mortgage Lane can expertly assist you in securing Sharia-compliant buy-to-let mortgages through our network of specialised lenders in the UK. As a broker, we understand the importance of adhering to Islamic finance principles and work closely with lenders who offer mortgage products that align with these principles, without involving interest. Here’s how we facilitate your access to Sharia-compliant mortgages:

Lease Agreement (Ijara) Options: Mortgage Lane collaborates with lenders who offer Ijara-based financing. In this structure, the lender purchases the property and leases it to you. Your payments include a rental component and a part that contributes towards eventually acquiring full ownership of the property, in line with Islamic finance principles.

Co-Ownership (Diminishing Musharaka) Arrangements: We connect you with lenders offering Diminishing Musharaka. In this arrangement, you and the lender jointly purchase the property. Your regular payments are part rent for the share you don’t own and part purchase payments, gradually increasing your ownership stake.

Key Features of Sharia Compliant Buy-to-Let Mortgages through Mortgage Lane:

Islamic Law Compliance: We ensure that the mortgages sourced from our lending partners fully comply with Islamic law.

Risk Sharing with Lenders: The lenders we work with share the investment risk with you, adhering to the principles of Islamic finance.

Stable Payment Structures: Our lenders offer fixed payment plans, providing financial predictability and stability.

Variety of Property Types: We can find mortgages for a wide range of properties, including residential and commercial.

Eligibility Guidance: Mortgage Lane assists in navigating through the eligibility requirements set by lenders, including income, credit history, and property valuation.

Competitive Terms: Despite their unique structure, the Sharia-compliant mortgages we find offer competitive rates and terms.

Important Considerations:

Cost Comparisons: We help you compare the overall costs and fees associated with Sharia-compliant mortgages from different lenders.

Expertise in Islamic Finance: Mortgage Lane specialises in understanding the nuances of Islamic mortgages and ensures compliance with both UK law and Islamic principles.

Legal Robustness: We ensure that all mortgage agreements sourced are legally sound and respect both legal and Islamic frameworks.

Flexible Mortgage Options: Our lenders may offer flexibility in terms of overpayments or early settlement without penalties.

Mortgage Lane is dedicated to assisting you in finding Sharia-compliant buy-to-let mortgages that not only meet your financial objectives but also align with your religious and ethical values. To explore your options and receive tailored advice, we invite you to consult with our knowledgeable team.

Yes, obtaining a Sharia-compliant mortgage for properties purchased at auction is possible. However, it’s generally not recommended, particularly for traditional auctions that typically require completion within 28 days. Traditional auction processes often provide more time, but if you’re pursuing property through this route, the likelihood of securing a Sharia-compliant mortgage offer in time is low. This is compounded by the duration of legal searches, with some councils taking over six weeks to return results. Given these time constraints, it’s advisable to carefully consider your mortgage options and timelines when looking at auction properties. It is also worth  considering that legals on sharia compliant mortgage products are typically slower due to their unique requisitions.

In the realm of Sharia-compliant property financing, the concept of a ‘day one mortgage’ allows for refinancing your property without the traditional waiting period. Historically, in the conventional buy-to-let market, many lenders adhered to a ‘six month rule’. This rule often presented challenges for investors, especially those employing the Buy, Refurbish, and Refinance (BRR) strategy. Such constraints were even more pronounced in Sharia-compliant financing, where adhering to ethical investment practices is essential.

The great news for investors interested in Sharia-compliant property financing is that the stringent six-month waiting period for refinancing based on post-refurbishment valuation is no longer a standard requirement. This evolution in lending practices is a boon, particularly for those who align their investment strategies with the ethical and responsible principles of Islamic finance.

However, navigating the nuances of these refinancing options within the Sharia-compliant framework can be complex, as they must remain interest-free and ethically compliant. This is where Mortgage Lane can be an invaluable resource. As specialists in Sharia-compliant finance, Mortgage Lane can guide you through these flexible refinancing options, ensuring that your investment strategies are not only profitable but also adhere to Islamic financial principles.

Mortgage Lane’s expertise in this area means you can capitalise on the opportunities presented by ‘day one mortgages’ in a way that aligns with both your financial goals and ethical values. We recommend reaching out to Mortgage Lane for tailored advice and guidance in exploring these Sharia-compliant refinancing options.

Within the Sharia-compliant buy-to-let mortgage market, some products are amenable to financing small HMOs (Houses in Multiple Occupation). However, when it comes to larger HMOs, particularly those with 5 bedrooms or more, a specific HMO mortgage product is often required. Mortgage Lane, as a specialist broker in Sharia-compliant financing, can assist in navigating these options.

For larger HMOs, especially those with 6 or more rooms and designed to be ‘fit for purpose’ with features like en-suites, the valuation approach may need to be more nuanced. These properties often require a hybrid valuation to reflect the investment’s impact on the property’s value. This is where Mortgage Lane’s expertise becomes crucial. We understand the unique valuation challenges these properties present and can guide you towards appropriate Sharia-compliant financing options.

In some cases, particularly where the property aligns more closely with commercial use due to its size and configuration, exploring commercial mortgage lending may be a viable option. Mortgage Lane can facilitate this exploration, ensuring that any financing solution adheres to Islamic finance principles while recognising the unique nature of large HMO investments.

It’s essential to understand that Sharia-compliant finance differs from conventional financing in its approach to risk, reward, and ethical investment. When dealing with properties like large HMOs, these principles become even more crucial. Mortgage Lane’s role is to ensure that your financing options are not only compliant with Islamic law but also tailored to the specific needs of your property investment, whether it’s a small or large HMO.

By collaborating with Mortgage Lane, you can access a range of Sharia-compliant buy-to-let mortgage options, receiving expert guidance to navigate the complexities of financing HMO properties in a way that aligns with both your investment goals and ethical values.

For Sharia-compliant buy to let mortgages, the maximum Loan to Value (LTV) ratio typically available is up to 80%. However, it is important to note that this is subject to stringent stress testing by the lender. Stress testing is a process used by lenders to determine the sustainability of the loan under various financial scenarios, especially those that might put strain on your ability to make repayments.

During stress testing, lenders will assess factors such as rental income, your financial stability, and other market conditions. Based on this assessment, the actual LTV offered to you may be lower than the maximum 80%. This is to ensure that the loan remains manageable for you under different circumstances and continues to comply with the principles of Sharia finance, which emphasises ethical lending and risk-sharing.

It’s also worth mentioning that each lender may have different criteria and approaches to stress testing. As a result, the LTV you qualify for could vary between lenders. Working with a broker like Mortgage Lane can help navigate these variables. Our expertise in Sharia-compliant financing allows us to guide you to the most suitable lender based on your specific financial situation and investment goals, ensuring a tailored and compliant mortgage solution.

Remember, the goal of Sharia-compliant financing is not only to provide you with a mortgage but to do so in a way that is financially sustainable and ethically aligned with Islamic principles.