Murabaha Mortgages are much less popular in the UK, and very few Islamic lenders offer them.
The main reason for this is that a very large initial amount of capital is normally required by the borrower, and the lending term is typically no more than 15 years, making it difficult to afford for most borrowers.
Murabaha Mortgages work in this way:
- You find a property and agree a purchase price with the seller
- You then agree the loan required with your Islamic lender
- Typically, you will have to provide around a 20% deposit at this time
- The lender will then buy the property and immediately resell it to you for a higher price
- You will then pay back the lender the resale price in fixed instalments until you own the property completely
- Typically, a Murabaha mortgage will not extend beyond 15 years, so repayments can be quite high
The difference between the original purchase price and the higher price at which the property is resold to you provides the Islamic lender with a profit that is compliant with Islamic law.