Brokers Should Embrace the Potential of Islamic Residential Property Finance

This editorial was originally published in Mortgage Solutions.

Consumers are increasingly moving towards a values-driven approach as they look to align their values with their financial goals. It is therefore no surprise that the ethical nature of Islamic finance has been resonating with so many people and has resulted in it becoming one of the fastest growing sectors in financial services globally.[1] According to research conducted by Gatehouse Bank, nearly half (45%) of UK homebuyers would consider using an ethical home finance provider that aligns with Islamic principles and over one in three (37%) UK homebuyers said that they would be most interested in opting for a Shariah-compliant provider because funds aren’t invested in unethical industries.[2]

Despite this, there remains a general confusion about the difference between Islamic and conventional finance and who Shariah-compliant products are for. Research from Gatehouse Bank’s Islamic and Ethical Finance Report 2024 found that, while there was an increased awareness of Islamic finance among UK consumers of the Muslim faith over the last five years, misconceptions remain amongst three in ten (30%) people that Islamic finance is exclusively for those of the Muslim faith.[3] This shows that more needs to be done to raise awareness that Islamic finance can be a compelling alternative for those seeking a more ethical approach and is available to everyone, of all religions and none.

Shariah-finance as a compelling option for brokers

It is becoming increasingly important for brokers to understand alternative finance types, including Islamic finance, due to its emergence as a compelling alternative to conventional finance. At Gatehouse Bank, a number of our customers come to us because of our ethical standards and products, including our Woodland Saver accounts, which grow UK woodlands and our green home finance products, where customers opting for an energy efficient home benefit from a reduced rental rate.* An enhanced familiarity with Islamic finance will also undoubtedly help brokers cater to the diverse nature of the UK market, which includes 4 million Muslims. In addition, the UK property market remains popular with international investors from the GCC and beyond, who are specifically looking for these products and being able to provide them as an option will help brokers tap into new markets.

For individuals seeking home finance, Shariah-compliant providers such as Gatehouse Bank offer Home Purchase Plans (HPP) for homebuyers and Buy-to-Let (BTL) Purchase Plans for landlords, which are commonly known as the Islamic alternative to a mortgage.

Brokers do require additional permissions to submit applications for private home ownership through a Home Purchase Plan, as this is a regulated Shariah-compliant activity. However, at Gatehouse Bank, we are still able to assist brokers without HPP permissions to manage customers seeking Shariah-compliant finance for home ownership through our Direct Adviser team. We keep brokers up to date about the progress of the application and then provide an introducer referral fee on all introductions made via this channel. Permission is not required if a broker is submitting Buy-to-Let applications however, as these products are unregulated, as is the case with conventional BTL products.

Going forward, it will be important for providers of Islamic finance and brokers to work together to increase knowledge and understanding of the options available to those seeking Islamic property finance as well as work to remove barriers and lingering misconceptions. This will ensure the sector can continue to grow and thrive and that homebuyers and landlords alike can access the full range of options available to them.

*As a Shariah-compliant bank, Gatehouse charges rental rates rather than interest rates, which reflect the share the customer owns of the property.

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Brokers Should Embrace the Potential of Islamic Residential Property Finance