In the ever changing financial services world it would seem that Sharia funding is set to disrupt traditional loans and mortgages. Stuart Marshall at Liquid Expat Mortgages points out:
“We have featured Sharia compliant products for a number of years now and have slowly but surely seen them grow from a boutique or niche product to a popular and appealing product to many people. In particular Expat customers have.”
One of the main issues facing Sharia Mortgages is the customer’s lack of knowledge, or rather lack of understanding of how they work when it comes to using them to fund a property purchase.
“There are still many expat customers who don’t fully realise the benefits of Sharia type funding and the benefits it can offer them despite the fact Sharia Finance is now offered by many high street banks and lenders as part of their lending panel. However a growing number of internationals customers and Expats have realised flexibility of Sharia finance,” said Marshall.
So how does a Sharia Mortgage work? “Firstly,” states John Squires, head of Mortgages at Liquid Expat Mortgages, “it’s important to understand there are various types of Sharia finance available and they are flexible enough to meet with your particular needs and objectives.”
Sharia Mortgages are technically not mortgages at all. Mortgages are loans that are granted when buying a property and usually a bank helps finance the purchase of a property, with the customer making monthly payments until they own the whole property.
“With Sharia finance your bank will purchase a property on your behalf and then either lease it back to you or levy a profit on top of the purchase price. This allows you to pay back the total sum Purchase price +Profit in agreed instalments without interest being applied,” Marshall said.
Stuart Marshall adds, “The variety of available products to expats and foreign nationals has grown considerably over the years. On top of that there are a number of early repayment charges-free products that have also come to prominence. With this type of product flexibility it’s no real surprise to us at Liquid Expat Mortgages that many people are looking at this type of finance to fund their next property purchase.”
The two main types of Islamic mortgage available in Britain are Murabaha and Ijara. Both types involve lenders purchasing a property and selling it to the buyer at a slightly increased price, or renting it to the buyer over a period of time until the mortgage is paid in full.
Murabaha or a deferred sale finance agreement is where a buyer is typically required to finance up to 20% of the property upfront.
Any repayment periods and monthly repayment amounts are agreed between the buyer and the lender and the repayments are fixed for the term of the mortgage with the maximum term being 15 years. What’s more you can repay the loan in full at any point without being penalised.
The key benefit to the buyer is that the property officially belongs to the buyer from DAY ONE as the property is registered in the buyer’s name. Ijara, or lease to own, has proven to be a more popular product as there is no requirement for a large initial payment and offers a slightly more flexible arrangement.
Can you replace your existing mortgage with a Sharia or Compliant Mortgage? Replacing a conventional mortgage with a Sharia-compliant mortgage is a fairly straightforward process.
The process is the same as if you were selling a property to another buyer except in this case the BANK is the purchaser. It purchases your property from you at its current market value and you agree to buy the property back at the same price. While the bank pays off your previous interest-based mortgage, you make equal monthly repayments to the bank.
Stuart Marshall concludes: “In the ever changing financial services world it would seem that Sharia funding is set to disrupt traditional loans and mortgages as it would appear to have struck a chord with customers looking for more flexibility and choice.”
Source EIN Newsdesk