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Unlike a traditional mortgage, whereby a buyer borrows a fixed amount from a bank to buy a house and then pays this back plus interest over a set term, with an HPP the bank and the buyer purchase the house in partnership.
The bank does not charge interest, as this is not allowed in Islamic finance, but instead charges rent on the part of the property that the customer doesn’t yet own. The buyer also pays an additional amount each month to gradually purchase the bank’s share of the property over a set period.
Buying a house through a home purchase plan has many similarities to a shared ownership scheme, as buyers pay both rent and a proportion of the house value until they own the property. However, one major advantage of buying through an HPP is that when buyers increase their stake in the property, the amount they pay is based on the value of the house when they purchased it. With shared ownership schemes, the value is based on the current market rate — which could be significantly higher than when they first entered into the agreement. This is a huge bonus for the buyer given how fast house prices have risen over the past decade.
Like other mortgages your borrowing capacity is assessed based on the amount of income you earn. Typically you will be asked to supply; - 3 months or 13 weeks payslips (if employed) - Latest 2 or 3 years SA302’s and tax year overviews (if self employed) - 3 months bank statements - Details of all outstanding commitments (including school fees) - Evidence of your deposit funds, and the build up of those monies Our specialist broker team will be able to confirm the exact requirements but to prepare these will be a good start.
2 applicants and incomes assessed is most common for applications. Some Sharia lenders will allow 4 names to go on to the mortgage application.
As a rough guide most banks and building societies will allow you a plan up to 4.5 times your household income, however, currently there are lenders who can lend up to 6.5 times your household income. One thing to note is what income a bank will consider can change from one lender to the next, if you are self employed the way different lenders assess can really impact your borrowing capacity. These lending multiple will be reduced based on your commitments, as mentioned above these could include student loans and childcare fees as well as other credit products.
It is sometimes possible to use income from multiple jobs to support your application. A challenge we have as advisors, is to demonstrate to a lender that it is sustainable. For a bit more context, if you were working a full time role and then working additional hours in the evening in another job, particularly if you have done for a short period, maybe only in the last year that will be scrutinised by the lender. They need us to demonstrate that your ability to continue with this job, and therefore keep earning to the same level, is realistic.
At the moment the smallest deposit needed is 10%, and there is only one lender willing to help you with a deposit of this size. You’re in the right place to access this lender though and at the moment only 20 broker firms nationally have access to do business with them, of which we’re one! More typically you need a 20% deposit. Generally banks will allow your deposit to come in part or entirely from a gift from a close family member, it is important to know that non blood relative family, such as deposit from aunties and uncles are likely to be rejected.
Having a greater deposit will allow you to buy a greater initial share, and mean you will pay less each month and of course less overall. In order to qualify with a smaller deposit your credit score and history will have to be good.
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Absolutely, whether it’s your first mortgage or tenth, Sharia mortgages can be for everyone.
Each lender will have their own fees and charges. Typical one’s are as follows; Arrangement Fee – sometimes this is a fixed fee but often maybe a percentage of the loan. Arrangement fees can often be added in to the mortgage but a lot of the time this can depend on the amount of deposit offered.
Valuation/Survey Fee – This is the banks check the house you are looking to buy is suitable mortgage security. Often valuation fees are scaled, the more expensive the property you are looking to buy the longer these surveys take, the longer they take the higher the charge. You will know about survey fees upfront
Your guess is as good as ours, this market remains to be a niche area for lenders and many just don’t feel the business need is there for them to revert from conventional mortgages they have offered for years.
Your VISA status will have an impact on your mortgage options. If you are an EU citizen with pre-settled or settled status then you can be treated just like a British citizen or anyone else with permanent right to work and live in the UK.
If you are on a non permanent VISA, such as spousal or tier 2 working, and don’t have permanent right to live in the UK there will be additional criteria that mean not all lenders will lend. Often restrictions on non permanent VISAs can be overcome with a greater deposit.
As mentioned in the introduction, halal mortgages or BTLPPs can be gotten with several lenders, but none have a high street presence.
Sharia buy to lets share common rules with conventional buy to let mortgages. Some lenders chose to grant mortgages to those able to demonstrate a minimum income (usually of £25,000) and most will use some form of PRA approved calculation to demonstrate the rental income generated from the property is sufficient to cover the mortgage in full.