Help to Buy extended to include ‘Islamic Mortgages’
Help to Buy mortgage guarantee scheme extended to include providers of Home Purchase Plans.
The government’s Help to Buy mortgage guarantee scheme can now also be used by providers of Home Purchase Plans, the Financial Secretary to the Treasury, Sajid Javid, announced today (11 February 2014). Home Purchase Plans (HPPs) are a Sharia law compliant alternative to mortgages and are often known as ‘Islamic Mortgages’.
The Help to Buy scheme has already helped thousands get on or move up the housing ladder, and the government remains committed to making the aspiration of home ownership a reality for as many households as possible.
In line with this, the government has been looking at how to open up access to the Help to Buy mortgage guarantee scheme, so that providers of HPPs can also benefit. From today the rules have been amended to enable banks that sell HPPs to purchase a government guarantee for them. Additionally, the Islamic Bank of Britain have stated their intention of participating to offer Home Purchase Plans under the scheme.
This will be particularly supportive to some Muslim homebuyers who have been unwilling to use a traditional Help to Buy mortgage because of their religious beliefs. However, the inclusion of HPPs in the Help to Buy scheme introduces more choice for all consumers and perspective homebuyers.
Sajid Javid 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.
Under an HPP, a property’s ownership is split between the customer and the bank. After buying a portion of the property with their initial deposit, the purchaser of the property pays regular instalments to the bank, covering rent for the portion they do not own and an acquisition payment. In this way, a customer gradually buys the property from the bank and eventually becomes the sole owner.
In order to purchase the government guarantee, banks will have to satisfy the same stringent criteria for an HPP as for a normal mortgage. HPPs sold in the UK are also subject to regulation by the Financial Conduct Authority (FCA), in much the same way as mortgages.
The Help to Buy extension builds on the government’s commitment to support the UK Islamic finance market, worth around £11 billion each year, and retain London’s position as the premier western Islamic financial centre. At last year’s World Islamic Economic Forum in London – the first outside the Islamic world – the government announced its intention to issue a sovereign Sukuk, or Islamic bond, for the first time. It also eased lending restrictions on and oversaw the introduction of two new financial products, Islamic student and start-up loans. This follows the establishment of Islamic-compliant student and start-up loans, to encompass all faiths, and the setup of an Islamic Index on the London Stock Exchange.
The action and innovation on consumer financial products, including home loans, student loans and business loans among others, will ensure that all sections of society can help drive growth in the economy and support the UK in the global race.