BRITAIN’S FIRST ISLAMIC MORTGAGE
The new Manzil programme, being offered by the United Bank of Kuwait (UBK), finally gives British Muslims a way out of the home-owning trap – the facility to purchase a home without entering into an interest-laden mortgage. The advent of an Islamic loan to buy homes could be a godsend for Britain’s 2 million-plus Muslims, of which 40,000 families are estimated to seek finance for home purchases each year. New Horizon talks to Keith Leach, a manager of the Islamic Investment Banking Unit at the UBK in London.
Q– The new Manzil programme being offered by the Islamic Investment Banking Unit of the London-based United Bank of Kuwait is being hailed as the first mortgage for Muslims in Britain. How does this so-called ‘Halal’ mortgage operate?
A- The concept is simple. The purchaser locates the desired property and agrees a price with the vendor (seller). The purchaser then approaches us for financial assistance of a certain sum (up to 75% of the purchase cost of the property).
If we are happy that the purchaser can afford the projected monthly instalments, we will buy the property for the originally agreed purchase price, and immediately sell it to our purchaser at a higher price with payment deferred over a number of years and months as agreed beforehand, and as specified in the Murabaha Contract, the prime Islamic document.
Q– How does it differ from conventional mortgages?
A- Conventional mortgages operate on the basis of a loan or mortgage account to which interest is charged. Manzil is different because it is a purchase and sale with payment deferred over an agreed term.
Q– How big is the fund made available for this facility?
A- There are currently no plans to limit the size of the funds available.
Q– What prompted UBK to venture into this area and make this facility available?
A- The needs of our clients drive IlBU’s activities. With up to 2 million Muslims in the UK, there was an obvious need for such a facility. The same is also true for the USA where Manzil will also be shortly introduced.
Q– Has permission to set up this loan programme been obtained from the Bank of England?
A- The form of Manzil is such that it is a permitted activity for the Bank under our banking licence. The Bank of England has, however, been separately advised of our plans.
Q– Who will be able to apply for this Mortgage?
A- Manzil (subject to applicants meeting the applicable criteria) is available to everyone over the age of 18, whether resident or non-resident in the UK, and whether Muslim or non-Muslim.
Q– What will be the ceiling for loans?
A- There is no ceiling, although different criteria might apply for very large properties.
Q– How long will the repayment periods be, and what will happen in the case of defaulters?
A- At the launch date, the term of the deferred sale can be either 5, 7.5, 10, 12.5, or 15 years. However, this might change in the light of experience.
With regard to defaulters, the Bank is a member of the Council of Mortgage Lenders and we will follow its voluntary code, where this is compatible with Manzil. We will consider cases of financial difficulty and arrears sympathetically and positively, and will always act in a reasonable manner.
It should be clear, however, that our documentation will give us the right to repossess and sell the property as a last resort.
Q– Since it was featured on BBC television’s The Money Programme, have you had many inquiries?
A- We continue to receive enquiries following the piece on The Money Programme on the 2nd Feb 1997. We have now received over 1000 phone calls and letters.
Q– The UBK in London is geared primarily towards catering for the needs of Middle Eastern clients who require banking facilities in the UK, and understandably so. But the Manzil programme is aimed at a potentially huge UK market well outside of your normal client base. Is this a major new departure for UBK, and how well prepared are you to deal with the demand generated?
A- By 1998, we plan to offer the Muslim community in the UK a range of financial services (savings plans, pension schemes, investment products etc) and see Manzil as the first step in this process. The infrastructure is already in place to cater for the likely demand for Manzil.
Q-How widely throughout the UK will it be available, and how will potential customers have access to it?
A- We plan to offer Manzil throughout the UK (and a different version in the US). At present, it will only work in England and Wales, while legal opinions are awaited from Scottish and Northern Ireland Lawyers.
We have plans to distribute Manzil through a network of solicitors and Independent Financial Advisors (IFAs). We are, at present, finalising plans and we hope that the solicitors and IFAs will be either Muslims and Urdu-or Arabic-speakers.
Q– How will you be advertising this service and bringing it to the attention of Britain’s estimated 2 million-strong Muslim community?
A- In many respects, Manzil will publicise itself and we already have a sufficient demand to make the whole development of the programme viable. In the long term, we will keep the awareness of Manzil by selective advertising, and through the raising of our profile.
Q– Will those British Muslims who already have conventional mortgages with non-Islamic British banks or building societies be able to transfer their house loan to the Manzil programme?
A- The method of Islamic finance used, Murabaha, means that Manzil will only work for new purchases, people moving house or first-time buyers. We are currently working to provide a different version of Manzil, which will allow those forced by circumstances to switch from an interest mortgage to a Halal scheme.
Q– Do you expect other UK financial organisations to follow your example and begin offering Islamic loans/mortgages in the near future?
A- I am sure other UK financial institutions will try, in the not-too-distant future. I believe, however, that it will be difficult for Western banks and building societies to bring the same degree of integrity to their schemes that we can offer from our historical ties with Islamic institutions in the Middle East.
Edited By Asma Siddiqi
Institute Of Islamic Banking And Insurance London
Comments
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.