Muslim homebuyers have to pay more

The higher cost of Sharia-compliant mortgages in the UK could be partly attributed to supply and demand dynamics. Only a limited number of lenders offer these specialised products, resulting in less competition. This lack of competition may contribute to the more expensive lending terms. For instance, the 5-year fixed rate for a Sharia-compliant Buy to Let mortgage is circa 7.60%, whilst a conventional 5-year fixed rate is approx 4.99%. The difference of 2.61% in interest rate and an extra £543 in monthly payments for a £250,000 mortgage is significant.

This cost disparity is an important factor for clients to consider. If they have financial constraints and aren't strictly bound by Islamic law, a conventional mortgage might be more cost-effective. However, if adhering to Islamic finance principles is crucial, the higher cost may be justifiable.

Sharia compliant mortgages have always been more expensive. The ownership structure is so different to that of a regular mortgage, it will likely always be a realm for specialist lenders to assist. These can be important tools for the right client. That said I always compare a regular mortgage, where a client asks for a Sharia mortgage and with good reason. The suitability of such finance actually and ultimately depends on the client's level of religious orthodoxy and subjective opinion on what does and doesn't constitute 'interest'. Sharia mortgage costs are still calculated as an annual percentage charged monthly, regardless of what that cost is labelled as. To some, it is semantically different enough from interest to warrant using a Sharia mortgage. Conversely, others, don't believe the charging structure is semantically different enough to a standard interest-based mortgage. Mortgage brokers owe it to perspective Sharia borrowers to have that conversation.

It's a tricky situation because sharia complaint deals are still niche products with few lenders offering them and as a result they do tend to be more expensive. In my own experience, just so my clients have been armed with all the facts, I have also shown the costs of non-compliant mortgages and the client has on occasion made the decision to proceed on those mainstream products instead when faced with thousands of pounds in extra costs. Those clients said they'd rather be able to give extra zakat than line a lenders pockets.