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  • Writer's pictureScott Mackey

Are mortgages Halal?

Updated: Jan 12, 2023

The question of whether mortgages are halal (permissible under Islamic law) has been the subject of much debate among Islamic scholars. According to Islamic finance principles, charging or paying interest (riba) is prohibited. A traditional mortgage, in which a borrower pays interest on a loan used to purchase a property, would therefore not be considered halal.

However, many Islamic financial institutions in the UK have developed alternative mortgage products that are compliant with Islamic law. These products, which are known as Islamic mortgages or home financing, are structured in a way that allows borrowers to own the property from the beginning of the loan, but the lender is involved as a partner in the property, so the borrower pays rent for the property.

In these types of products, the borrower makes regular payments to the lender, which are comprised of both rent for the use of the property and an agreed-upon portion of the purchase price. These payments continue until the borrower has paid off the entire purchase price and the property is transferred to their name. This is also known as ‘Diminishing Musharakah’ or ‘declining partnership’.

Islamic mortgages are becoming increasingly popular in the UK, with a growing number of financial institutions offering these products to customers. However, it's important to note that not all Islamic mortgages are created equal, and that borrowers should carefully research and compare different products to ensure they are getting the best deal.

It's also worth noting that not all scholars in the Islamic community consider these alternative products to be fully compliant with the Islamic laws. Therefore, as with any financial product, it is important to consult with a scholar who is well-versed in Islamic finance to ensure that it is permissible for an individual's personal beliefs and circumstances.

In summary, traditional mortgages in the UK may not be considered halal by some scholars in the Islamic community, due to the interest rate involved in it. Alternative products, such as Islamic mortgages or home financing, have been developed to conform to Islamic principles and have become increasingly available in the UK. These products are based on the principle of partnership and renting, rather than interest, however, it is important to research and understand these products and seek guidance from Islamic financial experts before making a decision.

If you would like to talk over this subject or any other with us, please feel free to get in touch

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