| According to the Islamic law, Sharia, the Muslims are | | | | Now the Muslim borrower's payment would now be |
| forbidden to pay or receive interest. Most of the | | | | treated as rent instead of "interest". And the payments |
| mortgage products on the market thus were | | | | would fluctuate with the interest rate changes. |
| unsuitable for Muslim borrowers as these mortgages | | | | The lease agreement would also specify that the |
| are mainly based on interest. | | | | occupier can buy the property off the lender for a |
| As a result of the increasing demand by the Muslim | | | | very small sum, usually £1, at the end of the |
| borrowers, lenders have in the recent years expanded | | | | lease period. |
| their product ranges with Sharia compliant mortgages. | | | | The Murabaha Loan |
| Under Sharia law, two mortgage types are available to | | | | By the Murabaha method, the mortgage lender |
| potential homeowners: Ijara (Lease To Own) and | | | | purchases the property and immediately resells it to |
| Murabaha (Deferred Sale Finance) loans. | | | | the Muslim borrower at a higher price. |
| The Ijara Loan | | | | The profit that the lender essentially makes out of this |
| By this method, the mortgage lender would buy the | | | | transaction is the equivalent of all the interest on a |
| property from the vendor; becoming the owner. The | | | | fixed interest loan as well as any costs incurred. The |
| lender then leases the property to the over 20 to 25 | | | | borrower then buys the property from the lender at |
| years with a monthly lease payment. The lease | | | | that gross figure, which is then repaid to the lender in |
| payments would take all of the lender's costs into | | | | equal installments for a period, typically of 15 to 20 |
| account. | | | | years. |