[Vision2020] Islamic Mortgages

[Chasuk]

Slightly old news, but fascinating.

http://money.guardian.co.uk/islamicfinance/story/0,,1455291,00.html

Lloyds TSB launches Islamic mortgage

Adam Jay
Tuesday March 22, 2005

Guardian Unlimited
Lloyds TSB will launch a home finance product which is compliant with
sharia law today, a month after introducing an Islamic current
account.

The facility - an alternative to a traditional mortgage - conforms
with Islamic law, which forbids both the payment and receipt of
interest. Rather than lending money to a customer to buy a property,
the bank buys a home for the customer, who then pays the purchase
price in monthly instalments.

As the bank is the legal owner of the home, the customer also pays a
monthly rent, which decreases as the customer buys the bank's share of
the property. Eventually the customer buys out the bank, at which
point ownership is transferred.

Mark Austin, of the bank's Islamic financial services division,
claimed that the new facility will do away with the dilemma of having
to go against one's faith or avoid a mortgage altogether.

"Our research tells us that three quarters of the country's Muslims
want banking services that meet the needs of their religion, and this
new home finance product should help bring a new generation of
homeowners onto the property ladder," Mr Austin said.

Islamic mortgages have tended to cost more than standard ones, and
have traditionally demanded a 30% deposit. However, competition has
recently increased - with facilities now offered by institutions such
as independent financial adviser Destini, and HSBC's Amanah Finance
division. That competition has driven the required deposit lower -
with both Amanah and now Lloyds TSB providing up to 90% of the
purchase price.

Although the market is still relatively limited, mainstream banks have
finally begun to wake up to the potential in offering sharia-based
products to Britain's 1.8 million Muslims. Back in 2002 a report by
market analyst Datamonitor estimated that sharia-compliant mortgages
would be worth ?4.5bn by next year.

Amanah also offers a pension fund which excludes shares in companies
dealing in areas such as alcohol, gambling, pornography, pork
products, tobacco or conventional financial services.

Lloyds TSB - which has consulted a board of Islamic scholars - will
pilot the scheme at the five branches in London, Luton and Birmingham
which have offered a sharia-compliant current account since last
month.

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