Important Tips about Home Purchase Plans (Ijara n Musharaka)

Firms regulated by the FSA have to give you certain documents. Whenever you see the sign, this means you are being given information that’s important for you.

Keyfacts documents that firms must give you

You should get the following documents:

■about our home purchase plan services –
explains the service and the range of products firms offer, and, if appropriate, the names of the Islamic scholars they have consulted.

■risks and features of this home purchase plan
– will explain the key risks, features and benefits of the plan.

■financial information statement –
will give you the costs involved in the plan – ie the overall cost and how much you will pay each month.

■Offer letter
including an updated financial information statement – you’ll get this when the firm offers you a home purchase plan. Use this to make sure you’re getting the product you applied for.

Complaints

If things go wrong with a firm, you should take your complaint to the firm first. If you can’t resolve the problem between you and the firm, you may have access to the Financial Ombudsman
Service – see Useful contacts . The Ombudsman deals with complaints that cannot be resolved between you and the firm.

Compensation

If you are dealing with a broker who advises you or arranges the sale of the plan for you, and the broker stops trading, you may have access to the Financial Services Compensation Scheme.
The scheme provides a safety net for consumers.

Don’t forget
■A home purchase plan may be suitable for you if you want to buy your home in a way that doesn’t involve paying interest.

■You will bear the costs of two solicitors’ fees and you may pay more for a property valuation and building insurance.

■You won’t legally own your home until the end of the plan – this could be between 7 and 25 years.

■Home purchase plans are complex products, so make sure you get independent legal advice.

■If you want Islamic services, the about our home purchase plan services document will tell you which firms can offer them.

■Make sure you deal with a firm FSA regulates.

■Make sure a home purchase plan is right for you – there are other ways of buying your home.

Link to Previous article : Islamic Mortgages

Islamic Mortgage

How Islamic Mortgage Works? An example of how Islamic Mortgage Works

Suppose that there is a married Muslim couple with the surname Taj, who are looking for a house according to their Islamic faith.
Mortgages from British financial institutions are interest-based, something which does not comply with Islamic Sharia law. Islam has no objection to wealth creation, but says it must be based on partnerships and fairness where risks and rewards are shared.

In the eyes of Islamic scholars, interest is an excess payment from one party to another which is unrelated to the value of the goods traded.

Mortgage interest is therefore unacceptable because one party gains at the other's expense without any regard to the price paid for the home.
This means many Muslims in Britain find themselves in a difficult situation, trying to balance the core principles of Islamic equality with the realities of the British mortgage market.

In many cases Muslims conclude they have no choice but to reluctantly take out an interest mortgage - something Mr Taj's own parents did.

But Mr and Mrs Taj are among a growing number of young couples who want to turn to the two lenders in the UK offering Sharia compliant mortgages - the United Bank of Kuwait and the West Bromwich Building Society.
Once the Tajs find a house, the lender buys on their behalf and owns it outright.
Just as with an interest mortgage, the couple move in and begin paying instalments to the lender to slowly buy the home over many years.
But the difference is they also pay a rent to the lender who has effectively become their landlord.
The lender owns the property and receives a rent until the Tajs pay the final instalment.
In Islamic terms, the rent is not another name for interest: It is seen as a fair payment for use of the property rather than a charge for borrowing money.
There are a number of factors which make this more expensive than an interest mortgage. Firstly, the couple need a large deposit of 20% of the value of the home.
Secondly, because the process means the home legally changes hands twice, the Tajs will end up paying stamp duty twice, rather than once.
The couple have an added worry of trying to save enough to keep up with the rising London property market.
Hence, the borrower ends up paying more, but the Muslims who believe in their faith are prepared to pay more
So is there a demand for this type of mortgage?
"There's enormous interest in this subject among young Muslims. A lot of our friends are in the same situation," says Mr Taj.
"Some have managed to raise the money to take out an Islamic mortgage.
"A few of them have taken out interest mortgages because they feel it is the only choice they have, given the costs.
"I think they feel guilty about it but believed they had no alternative.
"It would make a real difference if there were more products on the market. Then there would be more choice for Muslims."

Link to Previous article : Home purchase plans and regulation - 2
This example is based upon a cast from BBC