Islamic mortgages can cost thousands more, with some requiring a minimum of a 15% deposit to be accepted.
Base rates also stand at around 9%, almost 3% more than standard mortgages.
The main reason for higher costs is due to their unique ownership structure, often making them a niche market served by specialist lenders.
In addition, only a limited number of lenders offer them, resulting in less competition, which contributes to more expensive lending terms.
Mortgage eligibility is incredibly strict as buyers have to pass affordability tests and the property has to be approved.
Sometimes, the company running the scheme might not finance certain homes, meaning any high-rises may be problematic, as could shared ownership.
How do Islamic mortgages work?
The main aim of Islamic mortgages is to help the lender avoid paying any form of interest on their mortgage payments.
To prevent this, the bank buys the property with its customer as the freeholder, or primary leaseholder, for long-lease properties. These are known as no-interest Home Purchase Plans (HPPs).
The provider then leases, or sub-leases, the property back to the homebuyer, who then pays rent on the part they do not own, plus increments towards buying the property.
The mortgage costs are computed as an annual percentage charged monthly. Cash deposits and subsequent payments are legally presented in a partnership agreement.
Muslim buyers and mortgage lenders are advised to explore all options. There are alternative options available that have similar structures to Islamic mortgages but allow for much lower deposits.
Many Muslim homeowners have opted for standard, low-interest mortgages. This is because they view the structure of Islamic mortgages as not being any different from a low-interest mortgage.
For more information about mortgage options, or if you are looking to buy/sell your home, contact us on 01924 461 236, or email email@example.com.