Lack of awareness behind low demand for Sharia-compliant mortgages

Specialist Sharia Islamic mortgages are available with certain lenders, and while take-up is currently low, this could improve if brokers change tack.

While brokers strive to offer Sharia-compliant mortgages, Lilla Dilliway, mortgage and protection adviser at BlueWing Financials, suggests that the low demand is because applicable borrowers are unaware that a Sharia-compliant mortgage is a possibility, especially in the UK.

A poll by Mortgage Solutions to establish how much Sharia-compliant business brokers are placing each year found that only 5.5% of respondents placed between one and ten mortgages and another 5.5% placed between ten and 20 Sharia-compliant mortgages in the past year.

Even though there seems to be a lack of market demand, all the brokers that participated in the poll said they wanted, and attempted, to offer Sharia mortgages, but found that many clients still choose mainstream products.

When compared, a Sharia mortgage’s part rent, part capital repayment aspect means that borrowers may find it difficult to meet the affordability criteria and/or have eligibility issues based on their credit history. Sharia-compliant mortgages are often also more expensive due to the higher administration costs of the lender, which for many borrowers will be a deciding factor.

Steve Jackson, owner of Jackson Potter Mortgage Brokers, said: “In my experience, a lot of people have gone down the route of applying for a Sharia mortgage and ultimately, for whatever reason have not been able to get there, and it’s been declined.”

He added: “When they’re rejected, they go back to the mainstream market and perhaps return in a couple of years to see if they would be accepted by a Sharia-compliant lender.”

An option for buy-to-let

Despite the lack of demand for residential Sharia-compliant mortgages, Jackson Potter Mortgage Brokers have found that it is an option for some of their buy-to-let clients. “A lot of them are investors and looking to invest in that compliant manner, hence why that’s our niche,” said Jackson.

Dilliway suggests that if Sharia-compliant mortgages were advertised and promoted in the same way as mainstream mortgages, an increase in take-up might be seen.

Akhil Mair, managing director at Our Mortgage Broker, agrees: “The demand – and more importantly the actual product – is not widely marketed nor something that even comes in conversation.”

Currently, six standalone Islamic banks are operating in the UK, and there are a further 20 banks offering Sharia-compliant products. Al Rayan Bank has the broadest offering for borrowers, but challenger bank Gatehouse launched its Sharia-compliant mortgage, known as a home purchase plan, last year making it available to UK residents, international residents and expats.

With Islamic Finance one of the fastest growing areas in financial services, perhaps it’s time for the lenders to listen to the brokers and consider marketing to the mainstream.

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