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Riba (the abolition of interest), is a religious belief or goal and value that the Islamic economic and monetary system is based. Standard UK mortgage practices, Riba and limited availability of Halal mortgage options has meant that many Muslims could not buy their own home without compromising their beliefs.
Since Halal (permissible) mortgages have become more available, those restricted in the past can now achieve their own goals. Halal mortgages are put together in a different way than standard interest bearing mortgages. This means that they are inline with Islam making them Shariah compliant.
Ijara is compliant with the Riba provision of Shariah as it is interest free. It is based on a lease situation with ownership taking place on completion of set payments. The basis for this transaction is similar to a standard purchase in that you find the home you wish to buy and agree on a purchase price with the vendor.
The lender then agrees a promise to purchase with you for an amount equal to the agreed purchase price. The lender then purchases the property on behalf of the buyer. You sign a lease agreement with the lender which outlines your rights to occupation. A portion of your monthly payments to the lender go towards repaying the purchase price of the property with the balance paid to the lender bank as a form of rent. As soon as the purchase price is reached, payments cease and ownership of the property is transferred over to you.
Musharaka is similar to the UK transaction known as shared ownership. As with the Ijara concept, you find the property and agree a purchase price. The lender again purchases the property and leases it back to you. Your first payment is deemed as your deposit. The Musharaka arrangement announces this amount as your initial share of the property. As the agreed term progresses, the capital portion of your monthly repayment to the lender will increase your percentage share of the property. You retain 100% ownership of the whole property when your last payment is made.