Glossary · UK
What is Sharia-Compliant Mortgage?
A home finance product, most commonly structured as a Home Purchase Plan, that avoids charging interest in order to comply with Islamic law, instead using rent or profit-based payment structures.
Full Definition
A Sharia-compliant mortgage, more accurately described in UK regulation as a Home Purchase Plan (HPP), is a form of home finance designed to avoid charging or paying interest (riba), which is prohibited under Islamic law, while still allowing a customer to buy and eventually fully own their home. The most common UK structure is diminishing musharaka (co-ownership), under which the finance provider and the customer jointly buy the property, with the customer gradually buying out the provider's share over the term through a combination of a capital repayment element and a rental payment for the portion of the property still owned by the provider, so the customer's outright ownership share grows and the rental portion shrinks over time, similar in overall economic effect to a repayment mortgage but structured through co-ownership and rent rather than a conventional interest-bearing loan. Home Purchase Plans are regulated by the Financial Conduct Authority in broadly the same way as conventional mortgages, giving customers similar protections around affordability assessment, arrears handling and the right to complain to the Financial Ombudsman Service, and Stamp Duty Land Tax relief exists to prevent the co-ownership structure from triggering an extra, additional SDLT charge compared with a conventional mortgage purchase of the same property. Availability of Home Purchase Plans in the UK is more limited than conventional mortgages, with only a small number of specialist providers offering them, and customers -- whether motivated by religious belief or simply an interest-free structure -- should compare the overall cost carefully against conventional mortgage products, since Home Purchase Plans are not automatically cheaper simply because they avoid the word "interest."