The government’s Help to Buy mortgage guarantee scheme can now also be used by providers of Sharia compliant Home Purchase Plans and the Islamic Bank of Britain is set to launch a product.
Home Purchase Plans (HPPs) are a Sharia law compliant alternative to mortgages and are often known as ‘Islamic Mortgages’. The rules have been amended to enable banks that sell HPPs to purchase a government guarantee for them.
Sajid Javid (pictured), financial secretary to the treasury who made the announcement, said: “I am delighted Home Purchase Plans will now be available under the Help to Buy scheme. This gives even more choice to hardworking families across the UK trying to fulfil their home owning aspirations.”
Samir Alamad, head of Sharia compliance & product development at the Islamic Bank of Britain, commented: “The launch of the Help to Buy: HPP guarantee scheme represents an important step for the UK Islamic finance industry.
“By adapting the original mortgage guarantee scheme, HPP providers and customers can benefit from the same government support that mortgage lenders and borrowers have enjoyed.”
What is a Home Purchase Plan?
HPPs are Sharia compliant, ethical mortgage alternatives, available to consumers of all faiths and beliefs. They differ from a mortgage where the customer borrows money from a lender which is then repaid with interest.
The HHP uses the Islamic finance principles of co-ownership (Diminishing Musharaka) with leasing (Ijara), where the Islamic bank and the customer buy the property as partners and the customer pays rent on the bank’s share in the property.
At the end of the term, when all acquisition payments have been made and the finance has been settled, ownership of the property transfers fully to the customer.
How does the Help to Buy: mortgage guarantee scheme work?
The Help to Buy: HPP guarantee scheme works in a similar way to the Help to Buy: mortgage guarantee scheme, but takes into account the different way that a HPP is structured.
It will enable banks to buy a guarantee for their Home Purchase Plans where the consumer has a deposit of between 5 and 20 per cent. The guarantee will compensate the bank for a portion of net losses suffered in the event of default. This will reduce their risk of offering home finance to consumers with a low deposit.
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