Are halal mortgages more expensive?

The straight answer - and why it matters

For most buyers in the UK today, halal home purchase plans do tend to cost more than conventional mortgages. The difference is usually seen in higher headline rates and larger upfront fees. Typical halal rates in 2025 sit around 6%, while mainstream averages hover closer to 5%. On a large loan, that gap can feel significant over time. Deposits are also often higher - many providers expect 20% or more, compared with the 5% available on some traditional products.

There are clear reasons behind this. Halal finance uses Sharia-compliant structures such as Diminishing Musharaka, Ijara or Murabaha rather than charging interest. That brings extra legal and Sharia oversight, more complex administration and higher funding costs for Islamic banks. The market is smaller too, with a limited number of UK providers like Al Rayan Bank, Gatehouse Bank, UBL and specialist entrants such as StrideUp and Pfida. Fewer players means less competition, and that keeps prices firmer than the crowded high street mortgage market.

Even so, the picture is not one size fits all. Some structures can use senior financing to reduce the effective rate below the headline figure. A few providers offer lower deposit options in specific circumstances, including under government-backed or shared ownership style schemes. As the market matures, costs may trend down, especially if more providers enter and funding sources broaden. For many Muslim buyers, the premium is the price of religious peace of mind - avoiding riba while still building equity in a home.

In short, halal home finance is often costlier today, but the gap can be managed. Understanding how pricing works, comparing total cost of ownership and working with a specialist broker are the most reliable ways to keep your plans affordable and Sharia-aligned.

The real comparison is not just the rate - it is the total cost over the fixed period, including fees, flexibility and your deposit.

Who will find this guide helpful

If you are a UK homebuyer who wants to purchase in line with Islamic principles, this guide will help you weigh cost against values in clear, practical terms. It is also useful for anyone exploring ethical or interest-free alternatives to mainstream mortgages, including non-Muslim buyers who prefer shared risk models. First-time buyers weighing deposit hurdles, movers looking to refinance from an expiring deal and higher net worth buyers considering premium providers should all find straightforward guidance here.

Your main halal finance routes

1. Diminishing Musharaka - joint ownership with gradual buyout and rent on the bank’s share.
2. Ijara - lease-to-own model with fixed term rent and eventual transfer of title.
3. Murabaha - cost-plus purchase arrangement, usually shorter term or bridge-style.
4. Home Purchase Plans from Al Rayan Bank - variable rent linked to Bank of England base plus margin.
5. Gatehouse Bank HPPs - widely available products, larger market presence and fixed or variable options.
6. StrideUp - lower deposit options in some cases, often around 5% with scheme support.
7. Pfida and similar shared ownership models - alternative ethical structures, niche availability.
8. Specialist brokers - tailored comparisons across limited providers to reduce total cost.

What it could mean for your budget

Shortlisting providers by total cost - not just rate - usually narrows the gap.

Can you qualify - and on what terms

Eligibility broadly mirrors conventional lending on income, credit history and affordability, with additional Sharia compliance checks. Most halal providers currently prefer deposits of 20% or more, though there are exceptions. Some products require between 10% and 35% depending on property value, location and buyer profile. A handful of providers offer lower deposits around 5% where a suitable support scheme applies. The UK’s previous 95% guarantee scheme ended in June 2025, and a permanent successor is expected, which could help accessibility when available.

Expect standard documentation such as payslips, bank statements, ID and proof of deposit. Self-employed applicants usually provide two years of accounts or SA302s. Islamic banks often peg rental rates to the Bank of England base rate plus a margin, so variable costs can move during the term. Admin and legal fees can be higher than mainstream products because contracts undergo both legal and Sharia review. A specialist broker with Islamic finance experience can help present your case clearly and match you with the right lender. If you use a marketplace like Kandoo to compare options, focus on the full picture - deposit, monthly payments, fees and flexibility to refinance.

Step-by-step - from enquiry to keys

1. Define budget and preferred halal structure.
2. Gather documents and check your credit files.
3. Speak to a specialist halal mortgage broker.
4. Obtain an agreement in principle from a provider.
5. Offer on a property subject to Sharia approval.
6. Complete valuation, legal and Sharia reviews.
7. Finalise terms, pay fees and exchange contracts.
8. Complete purchase and set up monthly payments.

The trade-offs at a glance

Points to consider before proceeding

Clarity is your best protection. Start by modelling your budget at both current and plausible higher rates, since many halal plans link rent to the base rate. Ask providers for a full fee breakdown, including Sharia board, legal and valuation costs, then compare like for like across a fixed period such as the first two or five years. If your deposit is tight, explore whether any active government support or shared ownership style model can reduce the barrier to entry. Finally, keep an eye on flexibility - the ability to overpay, switch products or refinance can reduce total cost over time, especially if more halal lenders join the market.

Alternatives to weigh up

1. Conventional mortgage with charity offset on interest - not Sharia compliant, but some use it as a budget benchmark.
2. Shared ownership via housing associations - part buy, part rent with staircasing.
3. Saving longer for a larger deposit - may unlock better halal terms.
4. Buying with family as joint applicants - increases affordability subject to lender policy.
5. Renting while rates stabilise - reassess when new government schemes launch.

Common questions, answered plainly

Q: Are halal mortgages always more expensive?
A: Often yes, due to higher admin and funding costs and fewer providers. The gap varies by lender and product, so compare total cost not just the headline rate.

Q: How big a deposit do I need?
A: Many halal products prefer around 20% or more. Some options can go as low as 5% when supported by specific schemes, but availability is limited.

Q: What drives the pricing difference?
A: Sharia structures like Diminishing Musharaka add legal and oversight steps. Islamic banks also face higher funding costs, which are reflected in rental rates.

Q: Do rates move like conventional mortgages?
A: Often yes. Many providers set rent as Bank of England base rate plus a margin, so payments can rise or fall with the base rate during variable periods.

Q: Which UK providers offer halal home finance?
A: Al Rayan Bank, Gatehouse Bank, UBL, StrideUp and newer entrants like Pfida are active. Availability and criteria vary, so a specialist broker helps.

Q: Can I refinance later to reduce costs?
A: Usually. As the market evolves, refinancing or switching products can lower your total cost, subject to fees and eligibility at the time.

Ready to compare your options

If you want a clear, side by side view of halal home purchase plans, Kandoo can connect you with specialist brokers who understand Sharia requirements and UK affordability rules. They will focus on the total cost you will actually pay, not just the headline rate, so you can decide with confidence and keep your plans aligned with your values.

Important information

This guide provides general information only and is not personal financial advice. Product availability, eligibility and pricing change over time. Always check terms with a qualified adviser or broker and consider independent legal guidance before committing to any agreement.