Britain's government sought to bolster London's position as a centre for Islamic finance on Tuesday by extending its 'Help to Buy' mortgage scheme to loans that comply with Islamic law. Help to Buy was launched last year and offers banks insurance against the risk of lending to home-buyers who cannot afford large mortgage deposits, reports Reuters (London, 11 Feb 2014).
Britain's finance ministry said property finance plans that circumvent Islam's bar on interest payments would now be eligible in the same way as standard mortgages.
"The Help to Buy extension builds on the government's commitment to support the UK Islamic finance market ... and retain London's position as the premier western Islamic financial centre," the report quoted a finance ministry statement.
THE REPORT GOES ON:
Islamic finance is worth around 11 billion pounds a year to Britain, the government added.
Later this year Britain aims to become the first Western country to issue a bond that complies with Islamic law, known as a sukuk, in a further attempt to cement London's place as the main Western centre for Islamic finance.
However, the sum of money that it intends to raise - around 200 million pounds - is small and in the past the government's debt issuance agency has had doubts about whether Islamic finance offers value for money and said the bond is likely to be a one-off.
The Treasury said Help to Buy Islamic mortgages would be provided by the Islamic Bank of Britain, which is owned by Qatar's second-largest bank Masraf Al Rayan MARK.QA.
Under the mortgages, the property is owned by the bank and home-buyers purchase it in stages, paying the bank rent on the rest of the property.
STATEMENT FROM UK TREASURY:
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 HPPscan 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 schemeintroduces more choice for all consumers and perspective homebuyers.
