Islamic home finance: Aligning with values-driven homebuyers and landlords
This article was originally published by The Intermediary.
Islamic finance, also known as Shariah-compliant finance, is a sub-sector of financial services which has been growing rapidly in recent years and is predicted to surpass US$4 trillion in assets globally by 2030.[1] In the Western world, the UK has emerged as a leader in this space, with over 20 institutions, including five fully Shariah-compliant banks, now providing Islamic finance products. This is more than any other Western nation.[2]
However, despite this promising growth trajectory, there remain lingering misconceptions about the differences between Islamic and conventional finance, as well as who can access these products. For example, according to Gatehouse Bank’s latest Islamic and Ethical Finance Report, three in 10 (30%) of UK consumers believe that Islamic finance is only available to those of the Muslim faith. To ensure the industry can reach its full growth potential and that customers are aware of the opportunities it could afford them, it is important to address these misconceptions and tackle the knowledge gap.
How does Islamic finance differ from conventional finance?
Unlike conventional finance, Shariah-compliant finance does not pay or charge interest, as Shariah principles state that money should not be generated in and of itself. Instead, funds must be put to a good use to generate profit supported by a genuine trade or business-related activity. This is why, Islamic savings accounts offer an expected profit rate, which is generated by the profit made by carefully investing customers’ deposits.
Additionally, we make sure that the property finance we provide and customers’ deposits are not used to support harmful sectors that are against Shariah principles. These include alcohol, tobacco, gambling, adult entertainment and the arms industry.
Finally, it is important that, as a Shariah-compliant ethical bank, we don’t do highly speculative investments and transactions and in any venture, the risk is always shared and mitigated. All our transactions involve real assets, with this approach encouraging trading and enterprise that is stable and transparent.
How does Shariah-compliant home finance work?
Shariah-compliant providers such as Gatehouse Bank offer Home Purchase Plans (HPPs), which are commonly known as the Islamic alternative to a mortgage. This involves the customer and the Bank forming a partnership to purchase the property together, with the customer then paying monthly acquisition payments and rent on the share of the property they do not yet own. Once all payments have been made, full ownership of the property is transferred to the customer.
At Gatehouse Bank, we also offer a range of Buy-to-Let (BTL) Purchase Plans which are available for UK residents, UK expats and international residents. These can be used by prospective or existing landlords just like a conventional mortgage to buy or refinance property, with the final outcome being the same.
Brokers do require additional permissions to submit applications for private home ownership through a HPP, as this is a regulated activity. At Gatehouse Bank, we are still able to assist brokers without these permissions to manage customers seeking Shariah-compliant finance by introducing the case to our Direct Adviser team and providing a reduced procuration fee as part of the process. Permissions are not required if a broker is submitting BTL applications to us, as these products are unregulated.
Why is Islamic finance attractive?
Despite the misconception remaining that Islamic finance is only available to those of the Muslim faith, the sector is becoming increasingly attractive to those from all faiths, or none, due to it being guided by the principles of transparency, fairness and ethical venture. This is resonating strongly with a society which is becoming more values-driven and looking to align their values with their financial decisions.
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%) said that they would be most interested in opting for a Shariah-compliant provider because funds aren’t invested in unethical industries.[3]
The rise of a more conscious way of accessing finance will be key as we move into 2026 and beyond to ensure providers are still able to deliver the home finance solutions that suit the needs of homebuyers and landlords alike. Raising awareness, removing misconceptions and working with the government to level the playing field between Islamic and conventional finance are all key components to ensure it achieves its full growth potential in the UK and in the wider global market and, at Gatehouse Bank, we aim to be part of driving this change forward.
[1] Research and Markets, 2022: UK Islamic Finance Market - Growth, Trends, Covid-19 Impact and Forecasts (2022-2027) Report
[2] Milbank LLP, Islamic Finance & Markets, October 2023
[3] Gatehouse Bank, https://gatehousebank.com/news/almost-half-45-of-uk-homebuyers-would-consider-using-an-ethical-finance-provider-that-follows-islamic-principles-finds-gatehouse-bank