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Islamic Mortgage

Answered as per Hanafi Fiqh by DarulIftaBirmingham

Islamic Mortgage 

An Islamic mortgage is an ethical mode of finance, which derives its principles from the Quran and the Hadith.

The Islamic mortgage provides a permissible alternative to an interest based mortgage by allowing individuals to purchase their own homes without having to pay interest as Islam strictly prohibits the practice of receiving and paying interest.

Therefore, two types of mortgage have developed which is compatible with the Quran or Hadith.

Briefly, they are Murabaha and Ijarah. Murabaha is where the bank buys the property at a set price and immediately sells it on to the client at a higher price. This is paid back in instalments and deemed to be a sales transaction and is similar to a fixed rate mortgage.

Ijarah is where the bank and the client both purchase the property and the client pays rent to the bank for its share and also payments in instalments towards the purchase of the house until the client pays the entire price of the banks share, and the rent paid in this period would be considered the bank’s profit.

For further clarification, you could refer to Mufti Taqi’s Usmani Sahebs book “An introduction to Islamic Finance” on pages 107- 109.

In regards to your question if the Islamic bank of Britain and HSBC’s Amanah Finance mortgage system is like the way I mentioned above, then it will be permissible to use it.

Furthermore, it is a better alternative than the conventional mortgage system, as it does not include interest.

Mohammed Tosir Miah

Darul Ifta Birmingham

This answer was collected from DarulIftaBirmingham.co.uk, which is run under the supervision of Mufti Mohammed Tosir Miah from the United Kingdom.

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