Gatehouse Bank has launched its longest fixed-rate deal for aspiring home buyers, becoming the most recent Islamic bank to provide a five-year home finance option. So, what's the new Gatehouse mortgage alternative and how do these deals work?
Islamic financial principles prevent you from borrowing or lending money in exchange for interest. This means some Muslims can’t buy a property using a standard mortgage.
The mortgage alternatives offered by Islamic banks allow you to follow these principles while still securing finance for your house.
Find out how Gatehouse Bank's deal compares and whether or not this can help you secure a house.
What is definitely an Islamic mortgage alternative?
An Islamic mortgage alternative – sometimes called a 'home purchase plan’ – isn’t just like a normal mortgage loan.
Once you've found a property that you want and agreed a cost using the seller, an Islamic mortgage provider will then purchase the property for you.
The bank will sell the home back to you at a high price. You then spend the money for bank in instalments.
Buyers may also decide to lease the portion of the property they don’t yet own back in the bank, gradually buying more of the property over the term of the agreement.
The idea would be to take interest from the equation, and make it feasible for Muslims to buy homes.
Gatehouse launches new mortgage alternative
Under the brand new offer from Gatehouse Bank, homebuyers are now able to apply for a five-year fixed-rate deal, with an initial rate of 2.99% (reverting for an SVR of 4.5%).
You’ll must have a minimum of 20% from the amount you borrow (an 80% finance-to-value ratio), and repay on the term of up to 35 years.
On surface of this, Gatehouse may also be cutting rates on its existing Islamic home finance products by as much as 0.7%. Which means that the Bank’s two-year fixed deal will fall from 3.19% to 2.79%. You’ll need to have at least 50% from the loan in advance (50% FTV).
Who else offers Islamic home finance?
Currently, Al Ryan and UBL would be the only other banks offering Islamic mortgage alternatives in the UK.
Al Rayan offers two and three-year fixed deals ranging from 60% FTV to 95% FTV for houses worth a minimum of lb80,000. The maximum amount of finance the financial institution offers is lb1.5m and also the repayment term ranges from seven to 32 years.
UBL's mortgage offerings are available by using the calculator on their website, though you must refer to them as directly for rate information.
Islamic mortgage alternatives vs standard mortgages
We’ve rounded up some key points to consider if you’re considering getting an Islamic mortgage.
Are Islamic mortgages cheaper?
Although Islamic mortgages have fewer charges and fees related to them, the repayment rates are likely to be more than interest on a standard mortgage.
This partly since there are less providers on the market, creating less competition.
Over the path of the agreement, what this means is you’re prone to pay more under an Islamic mortgages than the usual standard mortgage.
How stamp duty applies
As an over-all rule, when you buy a property, you may need to pay stamp duty.
If the home you’re buying is over the threshold – lb300,00 for first-time buyers or lb125,000 for home movers – you’ll need to pay this when the bank first purchases the home for you personally.
However, when you’ve repaid the debt towards the Islamic finance provider and also the property is transferred to you, there won’t be considered a second stamp duty bill to pay.
Do you need to be a Muslim to use an Islamic lender?
You needn't be a Muslim to obtain an Islamic home finance deal.
Indeed, Sharia-compliant banks operate by having an ethical framework that could attract an array of customers. For instance, they don't use their profits to invest in gambling, alcohol, tobacco or pornography.
However, keep in mind that rates are not likely to become as competitive as other mortgage lenders.
Get expert home buying advice?
Whether you’re seeking onto the property ladder or taking the next move up, speaking to a neutral, whole-of-market mortgage broker can be very useful.
They can offer you expert advice on schemes that could help you to get on the property ladder in addition to assessing all of the deals on the market to help you find the best offer for you.
