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Shariah-compliant finance explained – Haresnape

by: Charles Haresnape, CEO of Gatehouse Bank
  • 13/06/2019
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Shariah-compliant finance explained – Haresnape
Home purchase plans (HHP) follow the principles of Shariah finance, which is considered to be based on the principles of fairness.


This rules out interest on the basis that money should not be generated from money and instead should be put to work to generate a return.

While HPPs are not yet universally understood, their popularity is growing. This is partly due to the transparency of the products and also because of the growing number of UK providers.


What is the difference?

When a property is bought this way, the bank buys the property in partnership with the customer. There is technically no borrowing.

Instead of levying interest, the bank charges the customer rent on the portion of the property they don’t yet own.

The customer also pays an additional amount each month to acquire the bank’s stake in the property over the finance term.

So the proportion of the property owned by the bank shrinks over time, as does the rent the customer pays. At the end of the term, the bank transfers complete ownership of the property to the customer.


Increasing property equity

One benefit of this method is that customers can increase their stake in the property at the value that applied when they purchased it.

This is greatly preferable to conventional shared-ownership schemes, where occupiers must buy additional equity at the current market value.

There are also other benefits such as no early repayment charges, excluding legal fees, should the customer wish to refinance or simply repay in full from other sources.

And rent payments are only reviewed quarterly for customers, if they are outside of a fixed term agreement, the equivalent of a fixed-rate mortgage.


Buy-to-let and expats

Gatehouse Bank has offered Shariah-complaint finance since December and has seen significant demand, including for landlords, with buy-to-let plans offering the same benefits.

A key part of our strategy is to target under-served markets, and we have been able to assist homebuyers and landlords who have found it hard to arrange financing and proceed with a property purchase, including expats and international residents.

Shariah-compliant finance is considered mainstream in many developed nations and we believe the market opportunity is significant for UK residents, expats and overseas buyers.


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