Islamic mortgage market is set to grow in Britain, says study

Islamic mortgage market is set to grow in Britain, says study

	Published : Sat, 30 Jul 2005 20:05 By : David Simms Print this Story

LONDON: The Islamic mortgage market is poised for a yearly growth of 47 per cent and could be worth 1.4 billion pounds by 2009. The current value is estimated at 164 million pounds.

Market research group Datamonitor, which carried out a study on the requirements of U.K.'s 1.8 million Muslims for mortgages that comply with Sharia law, said there is an increasing demand for such facilities.

The Sharia law does not allow payment of interest. An intermediary has to buy the property and keep it for an interim period and receive rent and other payments before it is transferred to the original buyer.

Datamonitor said British banks HSBC and Lloyds TSB have started offering Islamic mortgages. While there was only one bank in 2003 offering Islamic mortgages in the country, by end-2005, there will be at least five, including the newly-created Islamic Bank of Britain, according to the study.

The study's author Maya Imberg said, "The entrance of HSBC and Lloyds TSB marks a crucial milestone in the development of the Islamic mortgage market."

There are two methods that offer Sharia-compliant financial products -- Ijara and Murabaha.

The Ijara plan provides for a customer to choose a property and agree to a price. The property is then bought by the financier, who takes the legal ownership. It is then sold to the customer at the original price through a deferred payment system. During this period, the customer is expected to pay the financier a rent for the use of the property. The ownership is transferred to the customer at the end of the deferred period.

At present, Ijara products are not regulated by the Financial Services Authority. A study by a Bank of England working party into Islamic finance has recommended that Ijara products be brought under FSA regulation.

Murabaha mortgage provides for the financier to buy the property from the vendor, and on the day of completion of the deal it is sold on to the customer at a higher price. There was a question of double stamp duty, but this was removed by a legislation in 2003.