According to BBC reports, the Treasury and the Bank of England are making moves to encourage the development of Islamic mortgages, investments and current accounts in Britain.
Under Islamic, or Sharia, law, a Muslim cannot lend or borrow money when a rate of interest is charged. This has created the problem of an increasing amount of British Muslims with the resources available to get a conventional mortgage, but can not do so, as it does not comply with their religious beliefs or Islamic lifestyle. With the number of wealthy British Muslims growing, many avoid buying homes and are still living in rented property.
It has now emerged that three high street banks ‘ including Barclays and HSBC ‘ are preparing to launch special home loans that get round the problem by avoiding charging interest.
The Bank of England governor, Sir Edward George, has met mainstream and Islamic bankers and the Treasury, and has set up a working party to investigate the issue.
To make Islamic mortgages viable there will need to be a change in Stamp Duty. Islamic mortgages enable the lender to go into co-ownership of a home with the client. It might buy up to a 90% share of the home while the homebuyer buys 10%, using a saved cash deposit. The homebuyer borrows nothing, but would pay a rent instead, only some of which would go straight to the bank. The rest would go towards gradually buying the bank out of its share of the property.
Problems occur because the bank takes ownership of the property before the homebuyer does, and so under present legislation, two sets of Stamp Duty would be liable to be paid on what is essentially one transaction.
HSBC spokesman Jamie Harley acknowledged talks were taking place, but said they were at an early stage and there was no timetable as far as results were concerned.
He said: ‘We are in talks with the Treasury to provide a level playing field for Islamic compliant products in the UK and are looking at the double Stamp Duty issue. We are looking to find either ways around it, or maybe to change the law, so that these sort of products can be introduced.’