A mortgage is a loan obtained from a bank or other financial institution. The purpose of this loan is to help borrowers to purchase a home. The security of the mortgage is the home itself. If the borrower fails to make monthly payments to the lender and avoids the loan, the lender can sell the home and recover its money.
When it comes to the Islamic point of view, many Muslims in the modern world are facing an essential question is taking out a mortgage haram or halal?
Many people in the UK do not think about mortgages from a moral perspective. However, in Islam, there are certain guidelines for carrying out financial practices and contracts. As Muslims, we should be aware of the proper Islamic way to make financial decisions and ensure that we should not compromise our values through them.
There are a lot of arguments about the halal and haram of a mortgage. There is also an addition of the complicated issues about considering the mortgage options in Islam.
Let’s discuss the opinions about how traditional mortgages can be considered haram or halal and where you can find a halal mortgage in the United Kingdom.
Is Traditional Mortgage Haram?
One of the key reasons a traditional mortgage is haram is because it contains interest (usury). In Islamic belief, it is Riba.
But before these concepts, let’s first understand the working procedure of mortgage interest.
How Does Mortgage Interest Work?
Taking a mortgage or home loan means borrowing a specific amount of money. We need to approach either banks or financial institutions and ask them to lend us money so that we can purchase a specific property or house. A certain period is set during the negotiation process in which you agree to repay the amount.
But what makes lenders agree to lend them money is that we are subjected to pay interest on the money on that loan, and the interest can more likely become a huge amount of money.
The amount of interest depends on three factors;
- Loan size
- How quickly do you return the loan back
- The rate of agreement.
This type of scheme of the lending load has left Muslims thinking that traditional mortgages as haram.
Now let’s come down to riba to better understand its reasons!
What is Riba?
Islam is the only religion in the world that provides detailed guidance on not inherently spiritual matters. It guides its believers in conducting financial relationships, including the guidance of riba.
In English, riba is referred to as interest (usury), and it is the way of lending money, and in return, you will have to pay a large amount of money.
As stated in Quran:
‘O believers, devour not usury (riba), doubled and redoubled, and fear you God; happily, so you will prosper (3:129-130).
What is Gharar?
Gharar means something risky that often contains the connotation of deception.
Gharar may also involve mortgage because it involves variable interest rates, opposing a fixed interest rate.
In this type of interest, both borrower and lender agree to a primary rate that can vary with time. Many several factors cause changes in interest rates.
In Islam, Muslims are prohibited from engaging in any financial practices that contain gharar because God wants his people to be involved in honest business relationships.
What is Maysir?
In English, Maysir means gambling. Though it is not restricted to defining chances like slot machines or poker, it means financial activities involving chances.
The reason why Islam forbids Maysir is related to riba. Maysir implies the possibility of gaining profit from the possession of the money alone rather than from productive labor.
This situation is related to the mortgage with an interest rate wherein one party may unjustifiably get an advantage of the other without doing anything.
Arguably, both ‘Maysir’ and ‘Gharar’ should not be applied to the questions related to mortgages as they refer to the riba, which is haram in Islam.
Is Traditional Mortgage Haram or Not?
A traditional mortgage seems quite clear in a situation in which someone benefits from riba, so in that case, it would be haram.
Another possible belief is that a mortgage constitutes Murabaha, and it is an Islamic financial idea related to buying goods using someone else’s services.
Islamic Mortgage- Explained!
Islamic mortgages differ from traditional mortgages in two possible ways:
The first involves the concept of Murabaha. In this mortgage, the bank would buy the house on your behalf, and they will charge you a profit for the market that you will have to pay in installments over a specific time.
Many people often criticize the Murabaha agreement due to its similarities with a traditional mortgage.
Ijara is the second type of Islamic mortgage. It is a concept in which a person rents a property at a rate over a fixed time. The individual will take ownership of it in the end.
From where can you Get the Halal Mortgage in the UK?
There are four major providers of Islamic mortgages currently in the UK. The Islamic mortgage market is rapidly growing, with more and more providers like Habib Bank and Stride Up looking forward to launching their products suit at some point in the upcoming time.
You have an option to go directly to the lender but keep in mind that the lender will only speak to you about their product range. On the other hand, the independent mortgage broker of sharia-compliant deals will be advising the entire market.
The more a market expands, the better it is for consumers because there will naturally be more competition and choice. This is where the services of a broker knowledgeable about Islamic mortgages and the demands of the Muslim community and sharia law come in handy.
Whether you opt for an Islamic mortgage or a traditional mortgage, make sure you consider the moral complication of financial decisions. It will allow you to feel happy without compromising your values.