Islamic mortgages and Sharia-compliant home finance
Sharia-compliant home finance in the UK is usually provided as a Home Purchase Plan rather than a mortgage, because a conventional mortgage charges interest, which is riba and not permitted. Instead of lending you money and charging interest, the provider takes an ownership interest in the property and you pay rent on the share you do not yet own, buying that share out over time. Home Purchase Plans are FCA-regulated, so the consumer protections are comparable. This page explains how the structures work; it does not recommend a provider.
Why the structure is different
The objection in Islamic finance is not to profit but to interest. A conventional mortgage is a loan of money repaid with interest, which is riba. Sharia-compliant home finance is built to achieve the same outcome, home ownership over time, through ownership and rent rather than lending and interest. That is why the paperwork, the stamp duty treatment and even the language differ from a conventional purchase, and why an adviser or conveyancer without experience of these products can slow a transaction down considerably.
The three structures you will encounter
- Diminishing Musharaka (co-ownership). You and the provider jointly own the property. You pay rent on the provider's share and buy that share down over time. The most common UK model.
- Ijara (lease). The provider owns the property and leases it to you, with an agreement that ownership transfers once payments are complete.
- Murabaha (cost-plus sale). The provider buys the property and immediately sells it to you at an agreed marked-up price, payable in instalments. More common for shorter arrangements.
What to check before committing
Ask how the rental rate is set and reviewed, and how often it can change. Ask what happens if you want to make early payments or exit before the end of the term. Ask how the ownership share is recorded and what happens on sale. And use a conveyancer who has handled a Home Purchase Plan before, because the transaction mechanics differ from a standard purchase and inexperience here is a common source of delay.
On advice
This is specialist territory and many mortgage advisers have never placed one. We publish this page because the information is genuinely hard to find in plain English, not because we are claiming to be able to arrange it for you. Ask any adviser directly whether they have arranged a Home Purchase Plan before. This page is information, not advice.
Common questions
Is it actually a mortgage?
Not in the conventional sense, and the distinction is not merely semantic. Sharia-compliant home finance in the UK is generally provided as a Home Purchase Plan rather than a mortgage, because a conventional mortgage charges interest, which is riba and not permitted. Home Purchase Plans are regulated by the Financial Conduct Authority, so the consumer protections are comparable even though the legal structure is different.
What are the main structures?
Three appear most often. Diminishing Musharaka is a co-ownership arrangement where you and the provider jointly own the property and you buy out their share over time while paying rent on the portion you do not yet own. Ijara is a lease arrangement, where the provider owns the property and you lease it with an agreement to acquire it. Murabaha is a cost-plus sale, where the provider buys and immediately resells to you at an agreed marked-up price payable in instalments. UK providers most commonly use a co-ownership model.
Is it more expensive?
The honest answer is that it depends and that a direct comparison is harder than it looks. The rental rate is not an interest rate and the cost structure differs, so comparing a headline figure against a conventional rate can mislead in either direction. Compare the total cost over the period you expect to hold the property, including fees, rather than the headline.
Do I pay stamp duty twice?
No. Because the structures involve the provider acquiring the property, there was historically a double stamp duty charge, and relief was introduced to remove it. A conveyancer experienced in Home Purchase Plans should confirm the current position for your transaction, since reliefs and thresholds change.
Can any mortgage broker arrange one?
Not reliably. This is a specialist area and many mortgage advisers do not have access to Home Purchase Plan providers or experience of the documentation. It is worth asking any adviser directly whether they have placed one before, because the answer varies widely.
Is a Home Purchase Plan protected like a mortgage?
Home Purchase Plans are FCA-regulated products, so complaints can go to the Financial Ombudsman Service and providers are subject to conduct rules. That is a meaningful protection and one of the reasons to use a regulated provider rather than an informal arrangement.
Founder, MortgageExplained
Adam spent over eight years as a mortgage adviser at Just Mortgages, with further experience in commercial finance. He is CeMAP and CF qualified. He built MortgageExplained to do one thing well: explain mortgages in plain English, so you know where you stand before you speak to a regulated broker. Every page on the site is written by Adam.
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