The world is waking up to Islamic mortgages
Charles Haresnape, Chief Executive Officer
For banks that sit outside the mainstream like we do, it’s common to target the needs of niche groups of customers, not served well by the big Banks.
In January last year, we officially launched Home Purchase Plans (HPP’s) — also referred to widely as Islamic mortgages — with a full range of products. We believe that members of the Muslim community are our main customer focus because there is a community in Britain that had been underserved for years.
We had held the same assumptions when the Bank earlier launched its Buy-to-Let (BTL) products. In both cases, two groups of borrowers — UK Expats and International Residents have also been underserved in recent years.
There are some obvious reasons why this is happening. Lending criteria had tightened in the past decade and many borrowers who would once have been accepted by traditional lenders were frequently turned away by a ‘computer says no’ approach. At Gatehouse we consider applications on a case-by-case basis by human underwriters who look at the customer’s full financial situations.
These customers look elsewhere and many discover specialist finance for the first time. Customers will notice the Bank doesn’t pay or charge interest, instead the Bank pays profit or charges ‘rent’ on its finance products. The end position is similar to conventional mortgages.
Whilst Home Purchase Plans (HPPs) are not yet universally understood, their popularity is growing. This is partly due to the transparency of the products and also because of the growing number of UK providers. Gatehouse is arranging HPPs and BTL finance for Muslim and non-Muslim customers based abroad.
In addition to Gatehouse recently improving rates across the board, the Finance-to-Value (FTV), has been increased and is now available up to 75% on products for UK Expats and International Residents.
The most significant rate reduction of 0.70% has brought the five year fixed term for International Residents (individual and corporate) down to 3.99%. UK Expats have seen the Bank’s five year fixed Term reduce 0.46% to 3.99%.
As an ethically-focussed specialist finance provider, there is more flexibility as there are no early payment charges. This means consumers can exit the arrangement whenever they want, should the customer wish to refinance or simply repay in full from other sources.
It’s important that we ensure both brokers and customers understand the ethical principles and how Shariah-compliant finance works and we do this by providing easy-to-understand information and the benefits it can offer them. Many brokers will be used to only recommending HPPs to those customers who are Muslim or specifically ask for the product; the appeal is much wider.