The first of their products is available to customers with a 25% deposit with a two-year fixed rate of 5.09%. This rate is fixed until 31 December 2015.
The second product has a lower rate of 4.69%, also fixed for two years, with a deposit of 35%.
The products come with a minimum administration fee of £995 or 1% of the loan with a minimum property value of £30,000 and rising to a maximum of £500,000. However, for homes in central London, this figure is set at £750,000 for the maximum and £90,000 for the minimum property value.
There are also no early repayment charges for these Buy to Let Purchase Plans (BTLPP).
Sharia compliant buy-to-let financial products
The bank’s head of sales, Imran Pasha, said: “There is a growing demand for Sharia compliant finance and lease deals have been launched in a response to that. The buy-to-let market is enjoying a resurgence and these BTLPP’s are an ideal way for landlords who want to fix their outgoings for the next two years.”
To be a Sharia compliant product, the BTLPP differs from a standard mortgage which would see a customer borrowing money from a lender and having to repay that amount plus interest.
However, the Islamic Bank of Britain’s new products adopt the Islamic finance principles of co-ownership, known as ‘diminishing Musharaka’ with leasing, ‘Ijara’.
Essentially, the buy-to-let landlord would buy a property with the bank as a partner and instead of paying interest they pay rent for the bank’s share of the property.
The bank uses its own funds, as well as the savings deposits from customers, to finance these products rather than offering interest-bearing products. This means the products are in full accordance with Sharia and ethical principles.
Islamic and ethical buy-to-let finance products
The bank also stresses that there is an important distinction between what it terms as ‘rent only’ and ‘rental rate’ as well as ‘acquisition and rent’ as these do not refer to the relationship between its customer and the tenants of their property.
Instead, they are used to refer to the financial arrangement between the customer and the bank itself as these consist of two elements: the rent payment and the acquisition.
The ownership of the property only transfers fully to the bank’s customer at the end of the term and when all acquisition payments have been met and the finance has been settled in full.
The Islamic Bank of Britain is also keen to highlight that their products are not just for Muslims and are increasingly attractive to customers and potential buy-to-let landlords looking for ethical financial products.
