Home-buying

Is there such thing as halal mortgages??

Wondering if halal mortgages are truly halal? This article explores the key differences between renting and halal homebuying in the UK, and what Shariah-compliant, interest-free options are available for Muslims looking to own a home without compromise.

2 min read

By Sumaiya A

For many Muslims in the UK, buying a home isn’t just a financial decision it’s an ethical one. With interest (riba) being clearly prohibited in Islam, the question naturally arises – Is a halal mortgage even possible? Let’s break it down.

What Do People Mean by “Halal Mortgage”?

The term “halal mortgage” is commonly used to describe Shariah-compliant home financing. Unlike conventional mortgages, these alternatives are structured to avoid charging or paying interest.

Instead, they use models like:

Murabaha – the provider buys the property and sells it to the homebuyer at a profit
Ijara – a lease model where the homebuyer pays rent on the part of the property they don’t own
Musharakah – a partnership-based model where both parties co-own the home. Where the homebuyer gradually purchases the property from the provider it is called “diminishing musharakah”

The idea is that homebuyers can purchase a home without paying interest.

Is It Really Halal Though?

That depends on how it’s structured. While many products are marketed as Shariah-compliant, some are equity based and some are debt based. The debt based products replicate the effects of interest through complex structuring. Some equity based products lack flexibility and transparency.

Some key questions to ask:

Does the model involve the charging of rent on a debt based product?
What happens if payments are missed?
Are you required to buy the provider’s share of the property like a compulsory repayment plan?
Are there extra charges for early repayment or exiting?

The answers to these questions help determine whether a model is authentically Shariah based.

So… Is Halal Home Financing Possible?

Yes! But it may not look like a mortgage at all.

True halal home financing avoids interest entirely, is based on partnership rather than debt, and offers ethical terms around flexibility, risk-sharing, and transparency.

As more people seek values-based alternatives, ethical co-ownership models are becoming more common and are proving that homeownership can be halal and practical.

The content produced by Pfida is intended for general informational and educational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Pfida is not regulated by the Financial Conduct Authority (FCA).Appropriate professional advice or independent research must be undertaken before making investment decisions..