LONDON: A new mortgage scheme complying with the sharia law has come into being in the U.K. targeted at Islamic investors. The new buy-to-let mortgage is designed by Bristol & West and the Arab Banking Corporation.
Sharia law does not allow earning money from money and as such payment of interest is forbidden. All sharia-compliant finance products operate without earning or charging interest.
The new deal from both the banking organisations are based on the diminishing musharaka principle, which allows the banks to buy the first property first, then lease it to the client, who then sub-lets it to a tenant. The client and the bank own the property together, with the client's share increasing over a period of 25 years. The rent will be charged at London inter-bank offered rate (Libor) (currently 4.55 per cent) plus 1.09 per cent, which is equivalent to the current buy-to-let mortgage charge of 5.64 per cent levied by Bristol & West.
There is an increasing interest among muslim customers to invest in property, said Bristol & West, and the Islamic buy-to-let mortgage is aimed at fulfilling this demand.
The specialised mortgage is also available at ABC, some branches of Lloyds TSB, Islamic Bank of Britain and HSBC. .
Lloyds TSB had introduced some Islamic banking as a pilot scheme when it launched a sharia-compliant current account in February 2005. Subsequently, it introduced a home finance package too. The current account facility is now available in 18 branches.
Posted
on : Sat, 08 Oct 2005 04:05 GMT | Mortgages News
By : Mike Lawson
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