Islamic mortgages will now be on offer for Muslim borrowers seeking to access the Government’s Help to Buy scheme.
Financial Secretary to the Treasury, Sajid Javid yesterday announced that banks including the Islamic Bank of Britain will be able to roll out the Home Purchase Plans (HPP).
HPP will allow Muslims to buy property without paying interest to the lender, since paying or receiving interest is against Islamic law.
Under the Help To Buy scheme, buyers only need to place five per cent of the value of the property as a deposit.
Homes worth up to £600,000 have been included in the scheme and critics argue that it could fuel a housing price bubble.
Muslim borrowers taking part in the scheme will be able to avoid paying interest by paying for the property – which will initially belong to the lender – in monthly instalments consisting of rent and an acquisition payment.
Last year, David Cameron announced plans for Britain to become the first non-Muslim country to unveil a new Islamic index and offer Islamic bonds.
Speaking at the World Islamic Economic Forum, he said: “I don’t just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world.”
Bishop Nazir-Ali, who holds dual citizenship in Pakistan and the UK, warned against the proposal saying: “This means that the Government itself will be subject to sharia in its dealings on these bonds.”
“Before we take these steps that could have unforeseen consequences we do need greater public discussion, greater explanation of what actually is being done and what it is we are letting ourselves in for”, he added.