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Islamic Finance Solicitors

Last Updated: 22/07/2025
29
8 min read

Conventional interest-based mortgages are not an option for those seeking property in England & Wales whilst adhering to Islamic principles.

Commonly known as Home Purchase Plans (HPPs), Sharia-compliant alternatives operate without interest (riba) and use unique financial structures such as Ijara, Murabaha, and Diminishing Musharaka.

An experienced Islamic Finance Solicitor is invaluable to you and will ensure your property transaction is not only legally sound, but fully compliant with Sharia principles.


What is an Islamic Mortgage?

An Islamic mortgage, often referred to as a Home Purchase Plan (HPP), is a Sharia-compliant way to finance the acquisition of property in England & Wales.

Unlike conventional mortgages that involve interest (riba), Islamic finance operates on principles that are ethically and morally aligned with Islamic law. This means that instead of borrowing money and paying interest, the transaction is structured around asset-backed financing, risk-sharing, and ethical investment.

Core principles of Islamic Finance:

  • Prohibition of Riba (Interest): Interest is considered unjust and prohibited in Islam. Instead, Islamic loans and HPPs involve profit-sharing, asset-backed financing, and ethical dealings, where the financier earns a profit from a tangible asset or venture, not from lending money.
  • Ethical Investment: Funds are not invested in industries deemed unethical or harmful (e.g., alcohol, gambling, arms, tobacco). This ensures that the entire financial ecosystem supporting your home purchase adheres to moral guidelines.
  • Risk Sharing: Both parties involved in the transaction – the homebuyer and the Sharia-compliant bank or financier – share the risk and reward of the transaction. This contrasts with conventional lending, where the borrower primarily bears the risk.
  • Asset-Backed: All transactions must be linked to tangible, real assets, such as property, rather than purely monetary speculation. This grounds the finance in real economic activity and prevents excessive debt or speculative practices.

These principles ensure that your home purchase is not just a financial transaction, but one that aligns with the values of fairness, transparency, and social responsibility.


Expert Conveyancing for Your Islamic Mortgage

Our Islamic Finance Solicitors understand the intricacies of Ijara, Murabaha, and Diminishing Musharaka agreements, ensuring every aspect of your property transaction is legally sound and fully Sharia-compliant. They will:

  • Handle the contracts, complex documentation, and multi-stage legal transfers in Islamic finance models.
  • Review purchase agreements, lease agreements, and declarations of trust.
  • Confirm the correct application of Stamp Duty Land Tax (SDLT) reliefs.
  • Work closely with Sharia-compliant banks and Islamic finance providers.
  • Solve all your property challenges in one place, giving you peace of mind.


Types of Islamic Mortgages

In England & Wales, Sharia-compliant banks and finance providers offer several structures for Home Purchase Plans (HPPs), each designed to avoid interest (riba) while facilitating property ownership.

Ijara (Lease-to-Own)

The Ijara model is a popular Islamic loan structure that operates on a lease-to-own basis. Here's how it typically works:

  • Bank Purchases Property: The Sharia compliant bank or financier purchases the property outright.
  • Lease to Customer: The bank then leases the property to you, the customer, for a specified term.
  • Monthly Payments: You make regular monthly payments, which consist of two parts: a "rental" payment for the use of the property, and a portion that goes towards acquiring ownership of the property from the bank.
  • Gradual Ownership Transfer: Over the term, your ownership stake in the property gradually increases as you make these payments. At the end of the term, or through a final payment, full ownership is transferred to you.

Ijara is often preferred for its flexibility, as the monthly rental payments can sometimes be adjusted to reflect market rates, and it allows for gradual equity build-up.

Murabaha (Cost-Plus Financing)

The Murabaha model is a cost-plus financing arrangement. While less common for residential mortgages compared to other structures, it's a fundamental concept in Islamic finance:

  • Bank Purchases Property: The bank first purchases the property you wish to acquire.
  • Immediate Resale: Immediately after purchasing, the bank sells the property to you at a pre-agreed, higher price. This higher price includes the bank's transparent profit margin, which is fixed at the outset.
  • Fixed Instalments: You then repay the bank in fixed instalments over a set period. No interest is charged; the bank's profit comes solely from the initial markup on the sale.
  • Immediate Ownership: Ownership is transferred to you immediately, with the property acting as security for your repayments to the bank.

Murabaha is characterised by its transparency regarding the bank's profit and the fixed repayment schedule.

Diminishing Musharaka (Declining Partnership)

Diminishing Musharaka is often the most common and popular Islamic mortgage structure used by Sharia-compliant banks in the UK for residential property finance. It's based on a declining partnership model:

  • Joint Purchase: The bank and you, the customer, jointly purchase the property, becoming co-owners. Your deposit forms your initial equity in the partnership.
  • Monthly Payments: Your monthly payments consist of two components:
    • 1 - Rent for Bank's Share: A rental payment for the portion of the property owned by the bank.
    • 2 - Acquiring Shares: An amount to buy additional shares of the property from the bank.
  • Increasing Ownership: As you buy more shares each month, your ownership percentage increases, and consequently, the 'rent' paid to the bank for their diminishing share decreases over time.
  • Sole Ownership: Eventually, you buy out the bank's entire share, becoming the sole owner of the property.

This model allows for gradual ownership and aligns closely with the concept of a diminishing partnership, making it a preferred choice for many homebuyers seeking an Islamic loan.


The legal process for Sharia-compliant home finance

While the goal of an Islamic mortgage (Home Purchase Plan) is the same as a conventional one – to help you acquire a property – the legal process involves distinct steps due to its Sharia-compliant structure. This is where the expertise of Islamic Finance Solicitors becomes invaluable.

Key differences from conventional legal processes

Initial Purchase by Lender (or Joint Purchase): Unlike a conventional mortgage, where the bank simply lends you money, an Islamic loan provider often legally purchases the property initially, or co-owns it with you from the outset.

This fundamental difference means your solicitor will be dealing with a different type of transaction from the start.


Multiple Legal Documents: Expect more contracts than a standard mortgage. Your solicitor will need to draft, review, and explain several key legal documents, which may include:

  • 1 - A purchase agreement (between the seller and the Islamic finance provider).
  • 2 - A lease agreement (in Ijara or Diminishing Musharaka models).
  • 3 - A declaration of trust (common in Diminishing Musharaka to define beneficial ownership).
  • 4 - A re-sale agreement (in Murabaha, detailing the bank's sale to you).

Each document must be meticulously checked to ensure it adheres to both UK law and Sharia principles.


Specialist Conveyancing: The core conveyancing process (searches, enquiries, transfer of title) is similar to conventional purchases.

However, your solicitor must be adept at handling the specific contracts and requirements of Sharia-compliant banks. They need to understand the nuances of each HPP structure and how it impacts the legal transfer of ownership and financial obligations.


Regulation and Consumer Protection: It's important to note that Islamic finance products in England & Wales are regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), similar to conventional financial products.

This provides you with the same level of consumer protection and recourse.


Get a Great Mortgage Deal for Your Circumstances

Our brokers will present the best options available to you, for any type of mortgage, including:

  • First-time buyers, home movers and buy-to-lets;
  • Employed; self-employed or director mortages;
  • Mortgages for non-UK residents or non-UK citizens;
  • Bridging loans;
  • Bad credit mortgages;
  • Guarantor mortgages;
  • Joint borrower, sole proprietor mortgages; and
  • Absolute, Possessory, Good, or Qualified Title.


Islamic Finance Providers in the UK

For those seeking an Islamic loan or Home Purchase Plan, identifying reputable Sharia-compliant banks and finance providers is a crucial step.

The UK market offers several established institutions that adhere strictly to Islamic finance principles, ensuring your home purchase aligns with your faith. These providers are often considered among the best ethical banks for property finance.

  • Gatehouse Bank: Recognised as one of the largest and most active providers of Sharia-compliant home finance in the UK, offering various HPP products for both residential and buy-to-let properties.
  • StrideUp: A newer and innovative provider in the market, StrideUp aims to make Sharia-compliant home finance more accessible to a broader range of customers.
  • Al Rayan Bank: Historically a major player in UK Islamic finance, Al Rayan Bank was well-known as the Islamic Bank of Great Britain. However, recent updates suggest they may no longer be offering Home Purchase Plans to new retail customers. It is advisable to check their official website or contact them directly for the most current information.
  • Kuwait Finance House (KFH): Often caters to higher-value properties, particularly in London, providing tailored Sharia-compliant finance solutions for affluent clients.

When considering a provider, it is always recommended to research their specific HPP products, eligibility criteria, and current offerings to find the best fit for your circumstances.

Remember, these institutions operate under strict Sharia governance and are regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in the UK.


Stamp Duty Land Tax (SDLT) and Islamic Finance

A common concern for individuals considering an Islamic loan or Home Purchase Plan is how Stamp Duty Land Tax (SDLT) applies, given the unique multi-stage nature of these transactions.

The good news is that the government has implemented specific SDLT reliefs to ensure that Islamic finance products are not at a disadvantage compared to conventional mortgages.

How SDLT reliefs work for Islamic Finance

Typically, in structures like Murabaha or Diminishing Musharaka, there might appear to be multiple transfers of ownership (e.g., from seller to the Sharia-compliant bank, and then from the bank to you, the buyer). Without specific reliefs, each transfer could potentially incur SDLT, making Islamic finance expensive.

However, the legislation ensures that these multiple transfers are treated as if they were a single conventional purchase for SDLT purposes. This means you will generally only incur SDLT once, on the final transfer of beneficial ownership to you, the homebuyer, at the same rate as if you had used a standard mortgage.

Your Islamic Finance Solicitor is key here. They will ensure that these reliefs are correctly applied throughout the conveyancing process, accurately calculating the SDLT due and submitting the necessary forms to HMRC. This expertise helps you avoid unnecessary tax liabilities and ensures your transaction remains compliant.


Can non-Muslims apply for Islamic Finance Products?

A common question regarding Islamic loans and Home Purchase Plans is whether they are exclusively available to Muslim individuals. The answer is clear: no, Islamic finance products are open to individuals of all faiths (or no faith) who meet the eligibility criteria and wish to engage in ethical, Sharia-compliant financing.

The appeal of Sharia-compliant banks and their products extends beyond religious adherence. Many non-Muslims are increasingly drawn to Islamic finance due to its ethical underpinnings, which include:

  • Transparency: The profit margins and terms are typically agreed upon upfront, providing a clear financial understanding.
  • Asset-Backed Transactions: All finance is linked to tangible assets, which can be seen as a more stable and less speculative approach to finance.
  • Ethical Investment: Funds are not involved in industries considered unethical, aligning with broader ethical investment principles.

Therefore, if you are a homebuyer or home mover in England & Wales seeking an ethical finance option that avoids interest, an Islamic mortgage could be a suitable alternative for you, regardless of your religious beliefs. Your Islamic Finance Solicitor can provide guidance on the legal aspects of these products for all applicants.


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Jack Meadowcroft, Content Writer for SAM Conveyancing
Written by:

Jack is our resident Content Writer with a wealth of experience in Marketing, Content, and Film. If you need anything written or proof-read at a rapid speed and high quality, he's your guy.

Caragh Bailey, Digital Marketing Manager
Reviewed by:

Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.


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