Muslim house-buyers will be able to take advantage of George Osborne’s Help to Buy scheme after ministers launched a version which is compliant with Sharia law.
The multi-billion scheme allows people with only a 5 per cent deposit to get on the property ladder, with the taxpayer guaranteeing part of the mortgage.
Today the Treasury announced the guarantees can now be used by providers of Home Purchase Plans, which can be used by Muslims to borrow money.
Mr Osborne launched the Help to Buy scheme to help people buy a home worth up to £600,000 last year.
Thousands have already used it to purchase a home, but there are growing concerns it could be helping to fuel a new house price bubble.
The Islamic Bank of Britain is expected to become the first lender to offer mortgages covered by Help to Buy.
HOW TO BUY A HOME WHEN SHARIA LAW FORBIDS PAYING INTEREST
Paying interest on a debt is forbidden under Islamic law, meaning Muslims are unable to buy a home using a conventional mortgage.
Islamic banks instead offer Home Purchase Plans, under which ownership of a home is split between the customer and the bank.
The homeowner buys a portion of the property outright with their initial deposit and then pay regular installments to the bank covering rent for the portion they do not own and an ‘acquisition payment’. It means they gradually buy the property from the bank and over time become the sole owner.
In some interpretations of Sharia law, which is Islam’s legal system and governs every aspect of Muslim life, loans are forbidden.
But Home Purchase Plans enables followers of Islam to buy a home without having enough money to purchase it outright.
Treasury minister Sajid Javid said: ‘I am delighted Home Purchase Plans will now be available under the Help to Buy scheme.
‘This gives even more choice to hardworking families across the UK trying to fulfil their home owning aspirations.’
Under an HPP, a property’s ownership is split between the customer and the bank. A
fter buying a portion of the property with their initial deposit, the purchaser of the property pays regular instalments to the bank, covering rent for the portion they do not own and an acquisition payment.
In this way, a customer gradually buys the property from the bank and eventually becomes the sole owner.
Last week Mr Osborne defended his Help to Buy scheme to guarantee billions in new mortgages against claims it is fuelling the housing bubble which has seen prices leap by more than 11 per cent in London.
Liberal Democrat Business Secretary Vince Cable is among those who have voiced reservations about the impact of Help to Buy.
But Mr Osborne said: ‘We are recovering from a property crash. Am I someone who says we should be vigilant about this? Absolutely we should be vigilant…
‘As is clear from (the Bank of England’s) reports, they do not at the moment see what you would describe as a bubble, but they are vigilant.’