Home purchase plans and regulation – 2

A home purchase plan may be right for you if you want to buy your home in a way that does not involve paying interest and that a number of scholars of Islamic law consider acceptable. But you need to think about several things, some of which are listed below.

Islamic services

If it is important to you that the firm you use offers Islamic services, check that it does. Firms we regulate must give you a document called about our home purchase plan services. The document must tell you the names of the scholars who have checked that the firm’s services comply with Islamic law.
FSA regulates the financial services provided by a firm – FSA do not regulate its compliance with Islamic law. If you have any doubts about the Islamic nature of the product or services a firm is offering, you should speak to your imam or an independent Islamic scholar.

How much finance do I need?

Home purchase plans are a long-term commitment so think about how much you can afford. For example, what would happen if your circumstances changed and you lost your job or had to take a drop in income? Also you can't be sure that your rent won't go up in future. If you can't pay your rent, you'll be breaking the terms of the lease.

Shop around

There can be a big difference in what is available from different firms, so shop around to:
 -- get all the information available from firms about their individual services and products; and
 find out about different rental rates on offer – for example, standard, fixed and discount rates – and the total cost of each one.

Use the keyfacts document called about our home purchase plan services to compare the service being offered by different firms and the keyfacts financial information statement to compare the cost of the products on offer

Getting advice

Home purchase plans are complex products. Make sure you get advice from a specialist adviser to help you understand them.
Firms we regulate and their agents must follow the standards we set when giving you advice. They should only recommend those home purchase plans that are suitable for your personal circumstances, based on the information you give them.

What are the risks

■We require firms offering these products to protect your interests. However, there will be limits to what the firm can do, so it’s important to get independent legal advice to make sure your interests are properly protected. Take the time you need to make sure a home purchase plan is right for you.

■You need to remember that the firm, not you, owns the property, and that you won’t legally own your home until the end of the agreement – this can be anything up to
25 years.

■During this time, if the firm goes bust, or sells its part of the property to someone else, unless your interests have been properly protected you may risk losing your share of the property and your right to live there.

■Make sure that the lease giving you the right to live in the property has been properly registered with HM Land Registry or you may lose your right to live there.

■As with any method of buying a home, you need to think about whether or not you will be able to continue to make payments if your circumstances change.

Additional Costs

Two solicitors will be needed – one to act on behalf of the firm and one to act on your behalf. You will have to bear the costs of both.

Because the firm is the owner of the property, you may also pay more for a valuation and buildings insurance than you would with a mortgage.

Features not included

Because of the way they work, home purchase plans may lack some of the features of an interest-based mortgage.

For example:
■Overpayments normally allow you to pay for your home more quickly. When you take out a home purchase plan you can only make overpayments when the rent is reviewed, and this does not reduce the term but the amount you pay each month. This means you usually won’t benefit immediately from overpaying each month as you could with a mortgage.

■A further advance of money is often used to pay for things like home improvements. Unlike a mortgage, you may not get a further advance on an existing home purchase plan.

■Payment holidays allow you to stop making payments for a time. This may be useful if you were to lose your job or take time off to look after a child, for example. You can’t usually take a payment holiday with a home purchase plan.

Check the information from firms to see what features they offer.

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