Shariah-compliant finance: a growing option in the UK’s property market

This article was originally published in the April 2026 issue of ISFIRE magazine.

While the modern Islamic finance industry is relatively young, having only emerged in the 1960s and 70s, it has already established itself as one of the fastest growing areas of financial services globally.^[1]In fact, the sector is predicted to grow from US$200 billion in assets in 2003 to over US$4 trillion by 2030.^[2]Currently, nations within the Gulf and South-East Asia continue to dominate the Islamic finance industry, with Malaysia, Saudi Arabia and the United Arab Emirates ranking as the top three countries in the Islamic Finance Development Indicator (IFDI) 2025 rankings.^[3]Compared to other global markets in Africa, Canada, Australia and the EU, the UK’s Islamic finance sector is well-founded and in a particularly strong position for further global growth.

The UK’s Market Position

In 2025, the UK’s Islamic finance market was valued at approximately £5.6 billion, with an expected increase to nearly £5.9 billion by 2026.^[4]According to IFN Investor data, UK-based Islamic funds held £9.2 billion of assets under management as of June 2025, representing a year-on-year increase of 22.1%.^[5] From these figures, it is clear that the UK’s Islamic finance sector is following the global trajectory of growth and has been experiencing swift and widespread expansion. Currently, Britain has 20 institutions providing Islamic finance products, including five fully Shariah-compliant banks, which is more than any other Western nation.

The Financial services industry underpins the UK’s global economic strength and was one of the eight sectors highlighted in the current government’s modern industrial strategy for driving sustainable growth. In light of this, it is encouraging to see that Islamic finance is beginning to live up to its potential as a promising sub-sector which can contribute to the UK’s wider economic power.^[6] However, there is still work to be done to help Islamic finance achieve its full potential, particularly by addressing the persistent barriers that hinder its growth.

Steps taken to support the UK Islamic finance market

In recent years, the UK government has done a lot to support the Islamic finance industry’s growth. In 2014, the UK became the first nation outside the Islamic world to issue a sovereign Islamic bond, otherwise known as a sukuk, with a second sukuk being issued later in 2021. That same year, changes to tax treatment were made to ensure that equivalent Islamic and conventional transactions were served equivalent tax bills, and it was also announced that the Bank of England would take deposits from UK-based Islamic banks to its Alternative Liquidity Facility for the first time. This was a momentous step forward and the first of its kind offered by a Western central bank.

Following a campaign led by Islamic finance providers in the UK, including Gatehouse Bank, the current government amended Capital Gains Tax (CGT) legislation in their first Autumn Budget, rectifying an unintentional impact on Buy-to-Let customers opting for Islamic finance. This was another win for the industry as it delivered regulatory parity with conventional finance.

Barriers to achieving the UK Islamic finance market’s full potential

While significant progress has been made to advance the UK’s Islamic finance sector, there is still a tendency for legislators to view the Islamic finance market through the lens of conventional banking. Subsequently, there are a few matters which remain to be addressed, many of which are outlined in our latest report, Striving for Growth: Fostering the UK’s Islamic Finance Sector, released in 2025.

Within this report, we set out four key recommendations for the UK government to continue supporting the sector effectively. These were:

Establish a government-led taskforce to identify areas of growth
Attract new Islamic finance entrants by removing barriers and disadvantages compared to conventional finance
Develop a cohesive UK government strategy on Islamic finance to level the playing field between Islamic and conventional finance
Foster global collaboration on Islamic finance.

At Gatehouse Bank, we remain committed to help bring about real, tangible change for the industry. In 2025, we founded the Islamic Finance for Growth UK taskforce which brings together industry leaders and MPs to work towards this common goal. The Bank’s CEO, Charles Haresnape, has taken the lead within the taskforce on seeking to level the playing field between Islamic and conventional finance, highlighting how we continue to actively play our role and build on the learnings from our own research.

Placing ongoing work at a legislative and governmental level aside, one of the main barriers the UK Islamic finance market faces, are the lingering misconceptions around what it is and who is able to access it. Gatehouse Bank research shows that, while there has been an increased awareness of Islamic finance among UK consumers of the Muslim faith over the past five years, three in 10 (30%) of the wider UK public still believe that Islamic finance is exclusively for those of the Muslim faith.^[7]While it is encouraging to see that both awareness and adoption of Shariah-compliant financial products has gone up among the UK’s population of the Muslim faith, there is still work to do in order to remove these outdated ideas and educate people about the benefits that Islamic finance can bring to those of any religion and none.

Positioning the Islamic finance market as a viable alternative for all

According to Gatehouse Bank’s Islamic and Ethical Finance Report 2024, nearly nine in 10 (88%) UK consumers of the Muslim faith would consider switching to an Islamic finance provider, as would three in 10 (30%) people not of the Muslim faith.^[8] One of the reasons behind this interest in finding out more about Islamic finance is likely due to consumers becoming increasing values-driven and looking for more ways to align their values with the way in which they manage their finances.

At Gatehouse Bank, it is our belief that the intrinsic links between Shariah principles and ethical finance present a real opportunity for financial institutions to broaden their reach and cater to an increasingly ethically minded, environmentally conscious market. This is backed up by data from the Green Sukuk report published by Refinitiv, the Global Ethical Finance Initiative (GEFI) and the Islamic Finance Council UK (UKIFC) which found that green products can be an entry point for a different market to access Islamic finance.^[9] This fits with our own research, which found that almost half (45%) of UK homebuyers would consider using an ethical finance provider that follows Islamic principles and just under two fifths (37%) of UK homebuyers would be most attracted to Shariah-compliant providers because they do not invest in unethical sectors, such as alcohol, tobacco, adult entertainment, gambling and the arms industry.^[10][11]

This sentiment is mirrored by savings customers too, as a Gatehouse Bank survey conducted during the height of the rising cost-of-living, revealed that over half (52%) of respondents would review the ethical credentials of a savings account before committing their money to it.^[12]

With the ethical nature of Islamic finance clearly resonates with many, regardless of their religious beliefs, it is important for the industry as a whole to continue dispelling misconceptions, removing barriers and raising awareness of Islamic finance among the wider public. This will ensure that everyone is able to access the full range of finance options available to them, from those seeking a new savings provider, to prospective homebuyers and landlords looking for the right type of finance to fund their new property.

The UK home finance market

While the opportunities presented for Islamic finance within the UK are clearly wide-reaching and can go far beyond just having an impact within the home finance market, it is an area which has seen a great deal of growth and still holds some of the greatest potential for the near future too. This potential is partly due to expectations surrounding the home finance market more generally, with financial information service, Moneyfacts, predicting a ‘booming market’ for property in 2026.^[13]This prediction is due to lower rates available compared to the previous year and consumers having the highest choice of home finance products on the market for eighteen years.^[14]Add to this the fact that there are more providers than ever before who are offering Shariah-compliant alternatives to conventional mortgages and the stage is set for a highly prosperous time for Islamic home finance and those who are looking to access it.

Islamic home finance products are structured differently to their conventional equivalents; however, both inevitably reach the same outcome once all payments have been made, with full ownership of the property being transferred to the customer. At Gatehouse Bank, our Home Purchase Plan (HPP) and Buy-to-Let products involve 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. These products are available to those purchasing or refinancing property.

Our HPP and BTL home finance products have proven popular with customers from within the UK but also with customers overseas looking to buy a home or investment property in England or Wales. For some, this is due to their interest in Shariah-compliant finance for religious or ethical reasons, but others have been attracted by the innovative and wide product offering we can provide. This may suit those with complex cases or who have more niche requirements and are therefore unable to find a product that fits their needs from conventional providers.

Buying property in the UK remains an attractive option

As we enter a particularly buoyant home finance environment, the UK is once again well placed to support growth and cater to the needs of consumers and investors from far and wide and therefore in a great position to continue doing business with those from countries where Islamic finance markets may already be more developed. For example, at Gatehouse Bank, we continue to see interest from customers in the Gulf region, especially those looking to buy an investment property. This is due to several reasons, including the UK’s reputation as a strong, stable and attractive environment, both politically and economically. In addition, the UK property market holds the ability to yield consistently high returns on investment, with strong laws and policies in place to support those looking to buy. This is especially true for overseas investors, with one specific draw in English property law being the ability to deduct tax from some expenses such as property management fees, maintenance and insurance.

Another reason for the UK market’s attractiveness is the wide range of properties on offer, allowing each individual homebuyer or investor to find something that bests suits their needs. While many still continue to choose property within the metropolitan capital, London, an increasing number are turning their attention to other up-and-coming cities such as Manchester, Liverpool and Birmingham. These areas are seeing high demand due to the growing population of students and young professionals, as modern development projects increase.

Within our own customer base, over a quarter (28%) of international customers chose to invest in the North West and a further 20% in the West Midlands, as of 2025. In contrast, just 15% of these investors opted to invest in property in London. With the North East, Yorkshire and Humberside and the North West performing most strongly in terms of rental yields in Q4 of 2025, it’s no surprise that these regions are becoming a more popular choice.^[15]

What’s next for Islamic finance?

As we’ve explored, the UK’s Islamic finance market has the potential not only to serve the changing needs of consumers and investors but to have a material impact on the wider UK economy at the same time. The strong position that the home finance market is set to achieve this year also presents a great opportunity for the market to support those looking to buy a home or purchase their next investment property and contribute to the increasing choice that homebuyers and prospective landlords are experiencing.

It is clear that one size no longer fits all and, at Gatehouse Bank, we are proud to be part of a growing industry supporting more consumer-led options which are not only serving those of the Muslim faith but those who have a higher degree of requirements, or who simply want to choose the ethical option.

Additionally, with the emergence of Islamic fintech, it will be interesting to see how technological advancements can pave the way for future change and alter how we manage our finances while still adhering to the Shariah principles. With the UK being the only European country to be listed in the top 10 Global Islamic Fintech (GIFT) Index for 2025/26, this is certainly an area to watch as well.^[16]

Ultimately, we believe that if those from the industry within the UK and globally can work together to tackle the remaining legislative challenges, remove misconceptions surrounding Islamic finance and grasp every opportunity which is presented to us, there is no reason why the industry can’t go on to fulfil its full growth potential and more.