A buy-to-let mortgage is one of the best ways of financing a home that you want to earn rental income from.
Additionally, getting a buy-to-let mortgage can be convenient as it relates more on the rental income that you get and less on your financial records in most cases.
However, as per Sharia law, taking a mortgage against interest is ‘haram’ or not allowed.
But not to worry! Several lenders offer ‘halal’ buy-to-let mortgages that you can take out without violating Sharia laws.
In this article, we are going to discuss the details of what you need to know about a halal buy-to-let mortgage.
Table of Contents
What Is A Halal Buy-To-Let Mortgage?
A halal buy-to-let mortgage is a Sharia-compliant mortgage that conforms to all the laws of Islam. As the borrower, you can use it just as you would a traditional mortgage to buy rental property.
A halal buy-to-let mortgage is similar to other Sharia-compliant mortgage plans in that here, the bank or lending authority doesn’t act as a lender but rather a partner in the purchase.
Both the borrower and the lender have their shares in the property, and the borrower can buy back the remaining shares over time.
Halal buy-to-let mortgages are available for individuals as well as businesses, and you don’t necessarily need to belong to the Muslim faith to get one. You can belong to any faith and get a halal buy-to-let in the UK if you meet the lender’s application criteria.
These mortgages are usually available for purchasing new properties, releasing additional capital or refinancing.
Eligibility Criteria for Halal Buy-To-Let Mortgages
The eligibility criteria for halal but-to-let mortgages is more or less the same as that for traditional buy-to-lets.
While the specific criteria usually vary from lender to lender, here are some of the common ones:
- The rental income from the property needs to be at least 125% of the monthly repayment amount
- There’s usually a cap on the number of buy-to-let properties that an applicant can have
- In most cases one of the applicants must have been a homeowner for at least a year before the application
- The minimum age of the applicant must be 25 years, again lender dependent.
These are some of the general criteria. There can be other ones imposed by the lenders, such as a cap on the maximum number of joint applicants and other financial constraints.
The term for such mortgages is usually between 7 and 30 years.
Process To Get Halal Buy-To-Let Mortgage
1. Decide On The Right Lender And Product
Usually, this requires a bit of research and comparison of the lenders’ terms and products. You can do this yourself, but we recommend hiring an Islamic mortgage professional to get the best results.
Once you know the lender you want to go with, connect with them and discuss the process. They can provide you with custom options that are more suited to your unique situation.
An expert broker can help in this aspect as well by recommending the best plans for you.
2. Proceed With The Documentation
Next comes the very important documentation step. You’ll need to provide papers such as ID proof, income proof and details of the property that you’re about to purchase, along with any other documents required by your lender.
3. Wait For Approval
Once you’ve submitted your application formally, you’ll need to wait for the valuation and application formalities to be completed. Then, your offer will be officially approved and the funds made available to the solicitor when they are ready.
Please note that this is a very simplified version of the process, and the actual steps might involve more details that you’ll need to go through. It all depends on the lender and how good your application is.
Where Can You Get Halal Buy-To-Let Mortgages In The UK?
The following are some lending institutions from where you can get Sharia-compliant buy-to-let mortgages in the UK:
- Primary Finance
- Gatehouse Bank
- StrideUp
- WayHome
- Al Rayyan
Check out the list of banks and private lenders that offer Islamic mortgages in the UK for more details. [add link]
Frequently Asked Questions (FAQs)
1. Is it necessary to hire a broker for a halal buy-to-let mortgage?
It’s not necessary but advisable. An experienced broker can help you compare multiple lenders and products, choose the best deals and also negotiate with the lender on your behalf. They even help in preparing the documents so that the application process goes smoothly.
2. Is there a Capital Gains Tax associated with Buy-to-Let refinancing?
When refinancing under a purchase plan, a share of the property that is being financed is being sold by the borrower to the lender.
This share is then leased by the lender to the customer. Now, there can be a capital gains tax on this sale as there might be a gain for the customer.
In this case, we recommend talking with a tax advisor to get better guidance, as this would go beyond the scope of this article.
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