The potential of Shariah-compliant finance for landlords
This editorial was originally published by Mortgage Solutions.
Research has shown an increased awareness of alternative finance types, including green, ethical and Islamic finance.
According to Gatehouse Bank’s Islamic and Ethical Finance Report 2024, around three-fifths of UK consumers had at least some awareness of green finance (57%), ethical finance (63%) and Islamic finance (60%).
This was further evidenced by Morgan Stanley’s Sustainable Signals Report, which revealed a heightened interest in sustainable investment among three-fifths (57%) of investors over the last two years.
This highlights a real opportunity for alternative finance providers to bridge the gap for landlords who may be seeking alternative finance options to align their financial goals to their values.
By its very nature, Islamic finance is intrinsically linked to several international frameworks for sustainable development. For example, funds are not invested in industries perceived to cause harm to society, including alcohol, tobacco, gambling, adult entertainment and weapons. At Gatehouse Bank, we also do not finance extractive activities such as coal or oil.
On the government agenda
As consumers increasingly look for more sustainable alternatives, this is also on the agenda at a policy level. The government’s Warm Homes plan sets out a vision to increase the energy efficiency of homes across Britain. As part of this, Ed Miliband, Secretary for Energy Security and Net Zero, has confirmed that landlords will be expected to meet a minimum Energy Performance Certificate (EPC) rating of C or equivalent by 2030.
Understandably, this has caused concern for some landlords due to the associated cost of upgrading homes. However, it is promising that, according to data from the Office for National Statistics (ONS), new dwellings are becoming more efficient across the board.
In England and Wales, there was a marked increase in median EPC scores over the last five years, with 73% of new homes in London having community heating schemes as their main fuel type.
Supporting landlords
It will be important for landlords to feel supported as we move towards a more energy-efficient environment, and one way that this can be done is through offering products that provide incentives for purchasing or upgrading to a more energy-efficient property.
At Gatehouse Bank, our green home finance products offer homebuyers and landlords reduced rental rates when they opt for a property with an energy-efficiency rating of A or B. In addition, the bank offsets the carbon emissions of the average UK property for the product’s fixed term.
Ultimately, the UK property sector still has a way to go in providing well-insulated, energy-efficient homes, but the substantial appetite in the market and increase in alternative home finance solutions is an important step in the right direction.