MHO showcase pioneering affordable home mortgage model for the Muslim community

December 06

Metropolitan Home Ownership (MHO) presented the first home buying model to help Muslims access Key Worker and other forms of affordable home ownership at the recent (November 30th) launch of the London Housing Federation’s ‘A tale of two cities’ document.

The launch focused on the diversity and challenges presented to the housing sector by 21st century London before highlighting a number of good practice case studies, including MHO’s Sharia Compliant Open Market HomeBuy model.

This model represents a breakthrough moment for the affordable homes sector developed in conjunction with partners:

• Faith Regen UK (a faith-based organisation looking to regenerate communitis) and MHO believe the rest of the sector are bound to follow the lead.
• Devonshires Solicitors
• Alburaq, Sharia complaint financial services
• The Housing Corporation

The first successful applicant said about the scheme, “This has really helped me, not only to get a mortgage but as a community person to be a catalyst and really pave the way to transform others lives by working with MHO to launch this scheme. ”

MHO Director Graeme Moran said, “ This project backs up our strategic commitment to equal opportunities, diversity and sustainable communities and our response to the Home Ownership Task Force by making our affordable housing products as widely and as easily accessible as possible. This is a mortgage opportunity that’s compliant with Sharia, the interpretation of Islam that views interest-bearing loans as in conflict with Islamic principles. It’s a pioneering move, we are committed to social inclusion and in this spirit we will be working with the Housing Corporation to extend this model across all their Homebuy programmes so that other housing associations and their customers can benefit from the work we have lead on.

MHO will continue working with its partners to develop the best Sharia service in the market to those customers wanting or need access to affordable home ownership.

The successful sale completion paved the way for Open Market HomeBuy equity loans (where housing associations offer a type of interest free loan to help low income and Key Worker customers buy a home of their choice on the open market) to be made available to people previously excluded. Although currently some lenders offer Sharia approved finance and mortgage style products – they are aimed at homes in the open market rather than affordable home ownership. Consequently they do not tend to help Muslim households on lower incomes who cannot afford to buy homes on the open market.

The conventional mortgage loans are interest based, which is in conflict with Islamic Principles and therefore disallowed by Sharia.

The Qu'ran says:

“And what you give in riba (Arabic for interest) that it may increase on (other) people’s wealth, increases not with Allah (God)…”(30:39)

The main difference between Islamic and conventional housing finance is the former is equity based while the latter is debt based. In an Islamic mortgage both the bank and the client share the ownership of the property and therefore share the risk of the equity ownership. In conventional banking the client owns the equity and the bank loan to the client is secured on the value of the property.

The Islamic principles of sharing risks and rewards, and participating in the wealth creation activities via equity rather than debt has a solution that eliminates debt in its existing interest based form while continuing to promote entrepreneurship and creativity in the economic cycle.

MHO began this pilot in 2004, with the first completion in December of the same year; with further cases going on this pilot programme, which should complete in early 2007.