UK mortgage market receives lifeline with launch of new Home Purchase Plan from Islamic Bank of Britain

1st July, 2008 - Islamic Bank of Britain (IBB) today announced details of its new Home Purchase Plan (HPP), billed as ‘the mortgage alternative’, enabling customers to purchase their homes in an ethical and Sharia’a compliant manner. As fears rise of the mortgage market’s decline, and lenders withdraw many of their products, IBB is bucking the trend by entering the market, providing customers with an ethical way of meeting their home purchase and re-mortgage needs.

Islamic Bank of Britain’s Sharia’a compliant Home Purchase Plan is based on the Islamic financing principles of Ijara (leasing) and Diminishing Musharaka (partnership). Under this arrangement, both the customer and the Bank will each contribute towards the purchase of the home and both become partners. Over the period of the agreement, the customer will make monthly purchase installments through which he/she will buy the Bank’s share. With each installment paid, the Bank’s share in the property diminishes while the customer’s share correspondingly increases.

Sultan Choudhury Commercial Director commented: “Islamic Bank of Britain’s Home Purchase Plan (HPP) is a highly competitive product for customers who wish to finance their home purchases in an Islamic and ethical way. Open to all faiths, the HPP gives UK consumers a real alternative to conventional interest-based mortgages, which have suffered in the current financial climate. Customers uncertain of what their options are as a result of the credit crunch will find that IBB’s Home Purchase Plan follows a refreshingly new way of home financing that may be suitable for their needs.”

Mr Choudhury also noted that IBB’s product “is the only product in the UK whose source of funds is completely 100% Sharia’a compliant.” IBB’s Home Purchase Plan offers greater peace of mind and security for the customer since ownership is shared between the bank and the customer, as are the subsequent risks.

The following table outlines the key differences between a Sharia’a compliant finance and a conventional mortgage:

 The following is an example of the monthly costs involved of taking out IBB’s HPP

• Assume a property purchase price of £150,000
• Assume customer has £30,000 (20%) to pay towards the property purchase price.
• Assume customer wishes to spread payments over 30 years
• On this basis the Bank will pay £120,000 (i.e. 80%) and customer will pay £30,000 (i.e.20%)
• Assume the rent rate is 6.95%, i.e. base rate, as a benchmark, of 5% plus a margin of 1.95%.

In the illustration below the rent rate is fixed for 6 months. The example is for information purposes only and the actual figures are likely to vary.

Based on the example, monthly payments may appear as follows:

• Assume a property purchase price of £150,000.
• Assume you have £15,000 (10%) to pay towards the property purchase price.
• Assume you wish to spread your payments over 25 years.
• On this basis, the Bank will pay the seller £135,000 (i.e. 90%) and you will pay your £15,000 (i.e. 10%). Note: These amounts will be paid via the solicitors.

Each monthly payment will consist of two elements:

Rent element – this is the amount that the customer is paying to the Bank as rent on the Bank’s share of the property. This is covered by the Ijara (Lease) agreement.

Acquisition element - this is the amount that the customer is contributing towards purchasing the Bank’s share in the property. This is covered by the Diminishing Musharaka (partnership) agreement.

The rent element decreases at each rent review as the Bank’s share in the property decreases with each acquisition payment. Correspondingly, the equity in the property increases, (in the customer’s favour), with every payment.

The rent rate is fixed for the initial period of the Lease Agreement until either the 1st of April or the 1st October, whichever comes first after the date of completion. Thereafter, the rent rate will be fixed for six month periods at a time and will be reviewed in March and September each year, with new monthly payments commencing one month after this date. At each Rent Review date the rent rate may increase, decrease or stay the same.

Ends

About Islamic Bank of Britain

Islamic Bank of Britain has pioneered Sharia’a-compliant retail banking in the UK and has launched a wide range of products, including current accounts, savings accounts and personal finance. The bank was also the first to introduce Sharia’a-compliant Business banking to the UK, and now offers a wide range of institutional and business banking products and services, including commercial property finance.

Several of the bank’s products remain unique in the UK retail market (e.g. Sharia’a-compliant personal finance and Sharia’a-compliant savings accounts).

The bank is authorised and regulated by the Financial Services Authority and meets UK banking regulations and strict safeguards for customer deposits. All products offered by the bank are fully approved by the bank’s Sharia’a Supervisory Committee (SSC).

Sharia’a-compliant banking operates without the use of interest. The products that are offered are structured in a different way to those provided by conventional banks.

Whilst the bank offers products and services that are designed in accordance with Sharia’a principles, it is an inclusive bank and welcomes customers of all faiths.

Notes to editors:

Interviews with Islamic Bank of Britain are available on request.
The bank should only be referred to as “Islamic Bank of Britain”. If abbreviated please use “IBB”.

ENDS

Issued by Islamic Bank of Britain, Edgbaston House, Birmingham B16 8NH