LONDON, 17 October 2005 — Bristol & West, part of the Bank of Ireland Group, and ABC International Bank, the London-based subsidiary of Bahrain-based Arab Banking Corporation, have extended their range of Islamic mortgages with the launch of a “Buy-to-Let” mortgage for the UK’s two million or so Muslims.
Earlier this year, ABC International Bank also introduced a tax-efficient Islamic mortgage product specifically aimed at expatriates from the Gulf states and from Asia.
The Alburaq range of Islamic mortgage products, say the promoters are innovative and price competitive. In fact, the “Buy-to-Let” option was introduced following a price review in September whereby the pricing of rent was lowered across the product range, which now includes self-certification (where applicants cannot provide proof of employment and earnings) and discounted rent products. The “Buy-to-Let” Islamic mortgage is structured and marketed by ABC International, while Bristol & West provides all the product support, process expertise, and financial resources.
Islamic mortgages in the UK are set to be regulated by the Financial Services Authority (FSA), subject to the approval by Parliament and the House of Lords of The Regulation of Financial Services (Land Transactions) Bill. The House of Commons in fact, debated the bill on in May. The Office of the Deputy Prime Minister (ODPM) also finished a consultation at end of June on allowing Islamic mortgage structures to qualify for the government’s ‘Buy-to-Let” schemes for key workers, in this case for Muslim key workers such as teachers and nurses, should they prefer to use Shariah-compliant mortgages.
The “Buy-to-Let” mortgage is structured under the diminishing Musharaka contract, which involves co-ownership and a rental mechanism. There were some Shariah issues which had to be resolved relating to the usufruct of the lease especially since “Buy-to-Let” involves to instances of leasing under the diminishing Musharaka.
“Until recently,” stresses Alison Pallett, head of consumer lending at Bristol & West, “Britain’s Muslims have not had a real choice in how they invest their money in keeping with their faith. We have found that our Muslim customers have a particular interest in owning property and by offering a “Buy-to-Let” product which complies with Islamic law, we’ll be opening up more possibilities for them.”
According to Paul Sherrin of Lloyds TSB Islamic Financial Services, the bank “has established itself as one of the main high street providers of banking services for Muslims, with its Islamic current account and Alburaq’s home finance. We’ve recognized and fulfilled a real need in the community for these services, but with the addition of “Buy-to-Let” mortgages from these two banks we’ll be able to cater for even more customers.”
It is not only in the retail side that Islamic finance is making inroads into the UK market. Over the last few years Islamic investment in UK and European real estate assets have increased dramatically. According to DTZ, the London-based international property consultants, GCC-based investments in UK property increased from 827 million pounds in 2001 to 1.1 pounds in 2002.
This trend has continued in 2003 and 2004, especially as Gulf investment in US property assets have decreased because of perceived unfair and discriminatory immigration environment for Arabs and Muslims; and fear of investments being frozen by the US authorities armed with a perceived over-the-top compliance regime as underlined by the Patriot I and Patriot II Acts.
A survey conducted by The Royal Institution of Chartered Surveyors (RICS); King Struge, the international property consultants; and London South Bank University; in July 2005 concluded that the UK comes out strongly as the favored investment destination for Shariah-compliant real estate funds. Over 94 percent of those interviewed favored the UK as the destination for future investment. This compared with 62 percent for the Middle East and 47 percent for the US.
