What is an Islamic Mortgage?

Islamic mortgages are part of a growing range of Islamic finance products that are becoming increasingly popular in the UK. Introduced to the UK mortgage market in 2002.

Islamic mortgages are now widely available across the country, with several major high street banks offering them to their customers, as well as a number of smaller banks and building societies.

As with all types of Islamic finance, Islamic mortgages are designed to help Muslims obtain the finance they need without compromising the principles of their faith.

Under Shariah Islamic law, making money from money, such as charging interest (riba), is not permitted.  This is where Islamic mortgages differ from conventional mortgages.

Conventional mortgage products are based on getting a loan from a bank or building society to cover the cost of the property, then paying it back over a period of time, usually 25 years, at an agreed rate of interest.

But under the Islamic financial model, interest is viewed as an excess payment from one party to another – with one profiting at the other's expense - that is not related to the value of goods actually traded, and is therefore prohibited.

In addition, Shariah law states that wealth should only be generated through legitimate trade and investment in assets deemed permissible by Islamic standards. This means banks offering Islamic mortgages cannot finance companies involved with alcohol, gambling, tobacco or non-halal meat.