Home purchase plans and regulation

What are home purchase plans?

Home purchase plans help you buy your home in a way that doesn’t involve paying interest.
So they may be of special interest to Muslims who want to buy a home in a way a number of scholars of Islamic law consider acceptable.

What does regulation mean for you?

Firms we regulate must meet set standards. Among other things, this means that firms must:

■have staff with the necessary skills and knowledge;

■give you clear information about the services they provide –and

■only sell you products that suit your needs and circumstances.

And if things go wrong with a firm FSA regulate, you may have access to schemes that deal with complaints and possibly compensation.

Always check that the firm you’re dealing with is regulated by FSA.

■You won’t pay interest with a home purchase plan.

■Keyfacts documents contain important information that you should read.

■Protect yourself – only deal with firms regulated by the FSA.

Home purchase plans work in the following way:

Step 1: You find the property you want to buy and agree the purchase price with the seller.

Step 2: You pay the home purchase plan firm a contribution towards the purchase price.

Step 3: The firm buys the property in its name.

Step 4: You enter an agreement to buy the property from the firm at the end of a fixed period (known as ‘the term’) at the same price as the purchase price paid by the firm.

Step 5: At the same time you enter the agreement with the firm to buy the property, you also take out a lease with the firm allowing you to live in the property during that fixed period.

Step 6:
You make monthly payments to the firm. Each payment is made up of a rental payment and a payment towards the purchase price of the property.

Step 7:
Once you have made all the payments to the firm, the property is transferred into your name and
becomes legally yours.

Two types of home purchase plan are currently available – the ijara and the diminishing musharaka.

1. The ijara

Under the ijara, the monthly payments you make towards buying the property are held by the firm and used to buy your home at the end of the agreement.



2. The diminishing musharaka

Under the diminishing musharaka, each payment you make towards buying the property buys a slice of the firm’s share. So the firm’s share in the property gets smaller while your share increases. As your share in the property increases, so the rent you pay for the use of the firm’s share will get smaller.


Ask the firm for full details of their home purchase plans to make sure you understand how they work. You can then choose which is best for you.

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