Out-Law News | 13 Feb 2014 | 10:11 am | 1 min. read
Financial Secretary to the Treasury Sajid Javid said that the announcement would provide "even more choice to hardworking families across the UK trying to fulfil their home owning aspirations".
As of the beginning of January, nearly £1 billion worth of lending and support had been provided through the mortgage guarantee portion of the Help to Buy scheme. Help to Buy allows both existing and first time buyers with deposits as small as 5% to buy homes worth up to £600,000, with the Government guaranteeing the next 15% of the property's value.
The Government has now amended the rules governing the scheme to allow banks that sell HPPs to purchase a government guarantee for them. The Islamic Bank of Britain has become the first lender to announce its intention to participate in the scheme.
Sometimes known as an 'Islamic mortgage', a HPP splits the ownership of the property between the customer and the bank. The customer buys a share in the property with their initial deposit, and then pays regular instalments to the bank to cover rent for the portion that they do not own and an acquisition payment. This allows the customer to gradually buy the property from the bank and eventually become the sole owner. Paying interest to a lender under a traditional mortgage arrangement is prohibited by Shari'a law.
The announcement comes as part of the Government's commitment to support the UK Islamic finance market and retain London's position as the leading western centre of Islamic finance. It has already overseen the introduction of, and eased lending restrictions on, Shari'a-compliant student and start-up loans, and overseen the setup of an Islamic index on the London Stock Exchange. The UK also intends to become the first non-Muslim country to offer sukuk, or Islamic bonds, for trade.
In order to purchase the government guarantee, banks will have to provide HPPs to customers following the same stringent criteria that apply to traditional mortgages, the Government said. HPPs sold in the UK are regulated by the Financial Conduct Authority (FCA) in much the same way as mortgages.