Home Purchase Plans are Sharia-compliant mortgages which use the Islamic finance principles of co-ownership, called diminishing Musharaka with a leasing, or Ijara element.
This means the Islamic bank and the customer buy the property as partners and the customer pays rent instead of interest on bank’s share in the property.
At the end of the term, when all acquisition payments have been made and the finance has been settled, ownership of the property transfers fully to the customer.
The Help to Buy: HPP guarantee scheme will enable banks to purchase a guarantee for their Home Purchase Plans where the consumer has a deposit of between 5% and 20%. The guarantee will compensate the bank for a portion of net losses suffered in the event of default. This will reduce their risk of offering home finance to consumers with a low deposit.
Samir Alamad, head of Shariah compliance & product development, said: “By adapting the original mortgage guarantee scheme, HPP providers and customers can benefit from the same Government support that mortgage lenders and borrowers have enjoyed. It has introduced a level playing field for Islamic banks and consumers alike, and IBB is delighted to have been working closely with the Government to pioneer this exciting development.”
The Financial Secretary to the Treasury, Sajid Javid, said: “I am delighted Home Purchase Plans will now be available under the Help to Buy scheme. This gives even more choice to hardworking families across the UK trying to fulfil their home owning aspirations.”
IBB estimates that there are about a million UK Muslims adults with a need for its savings and home finance products, who are also inclined towards Shariah-compliant finance.
The 2011 Census of England & Wales which identified that the UK is now home to 2.7m Muslims, up from 1.5m in 2001. It is the UK’s second highest religion behind Christianity and ‘no religion’.
Islamic finance operates without the main instruments of the conventional finance sector, including interest and speculative products.