Are UK Islamic mortgages Sharia-compliant?

Understanding halal home finance in Britain

Sharia-compliant home finance in the UK avoids interest and replaces it with structures that share ownership and risk. Instead of a lender charging interest on a loan, you and the provider typically buy the property together, then you purchase the provider’s share over time while paying an agreed rent for the portion you do not yet own. This is why these products are often called Home Purchase Plans. They aim to align with Islamic principles by removing riba and embedding fairness and transparency.

Availability has improved in recent years as demand has grown and regulators have worked to level the playing field. The 2024 Budget removed several tax frictions that historically made Islamic options less competitive, bringing them closer to conventional mortgages on cost and practicality. In 2025, specialist lenders and banks are expanding ranges and improving refinancing options, supported by developments in the wholesale market that increase liquidity and, in time, may help reduce pricing.

While the market is still smaller than mainstream mortgages, the direction is positive. There are thousands of active Islamic home finance agreements in the UK, customer numbers are rising, and more consumers now choose halal options for ethical reasons, not only for faith compliance. Oversight by the FCA and PRA, along with deposit protection where eligible, helps build confidence. As with any regulated product, the detail matters. The contract must be structured correctly, the Sharia board must be credible, and costs, fees, and early settlement terms should be clear.

The heart of Sharia home finance is shared risk and real asset ownership - not interest on money.

If you are exploring your first home or planning to remortgage into a halal structure, this guide walks through how the main options work, what they cost, who qualifies, and the practical steps to take next.

Who this guide helps

This guide is for UK residents who want to buy or refinance a home in a way that aligns with Islamic principles. It suits first-time buyers, movers, and homeowners considering a switch from a conventional mortgage to a Sharia-compliant arrangement. It is also useful for non-Muslim consumers drawn to ethical finance, predictable costs, and the absence of interest-based debt. If you value clarity over complexity and want to understand how Home Purchase Plans compare with standard mortgages before you make a decision, you are in the right place.

Choices on the table

1. Diminishing Musharakah HPP - co-ownership where you buy the provider’s share over time and pay rent on their portion.
2. Ijara (lease-to-own) - provider buys the property and leases it to you with a plan to transfer ownership later.
3. Murabaha (cost-plus sale) - provider purchases the property and sells it to you at a marked-up price payable over time.
4. Fixed rent HPP - rent set for an initial term with periodic staircasing of equity.
5. Variable rent HPP - rent linked to a benchmark, reviewed at stated intervals.
6. Government scheme-compatible HPP - products designed to work with selected UK buyer schemes where permitted.

Pounds and practicalities

Can you qualify?

Eligibility for Sharia-compliant home finance in the UK is broadly similar to conventional mortgages, with a few structural differences. Providers assess affordability using your verified income, regular outgoings, and credit history, but they focus on your capacity to meet rent and acquisition payments rather than interest. Minimum deposits can start from around 5 percent for selected products, though stronger profiles and higher deposits tend to unlock more competitive pricing. Properties must be suitable security and usually located in England or Wales, with standard construction and clear title.

Applicants typically need to be at least 18, reside in the UK, and meet the provider’s credit policy. Some lenders accept self-employed income with two years of accounts, and a few consider retained profits for company directors. Buy-to-live is the primary focus, though some providers consider limited buy-to-let within specific Sharia parameters. If you are remortgaging from a conventional mortgage, you can often move into an HPP without triggering Capital Gains Tax on your main home, and recent reforms have helped remove tax disadvantages. If you want guidance on affordability or product fit, Kandoo can connect you to regulated advisers who understand both mainstream and Islamic product ranges.

From application to keys

1. Check eligibility and budget using a trusted calculator.
2. Gather payslips, bank statements, and identification documents.
3. Obtain a Decision in Principle from a provider.
4. Instruct a solicitor experienced in Islamic home finance.
5. Submit full application and property details for assessment.
6. Arrange valuation and confirm acceptable purchase price.
7. Review Sharia board approval and final offer terms.
8. Exchange contracts, complete, and begin staircasing plan.

Upsides and trade-offs

Look before you leap

Before you commit, read the Key Facts documents carefully and make sure you understand how rent is reviewed, how equity purchases reduce your monthly cost, and what happens if you need to sell or settle early. Check the credibility of the Sharia supervisory board and confirm that the product uses genuine co-ownership rather than disguised interest. Ask how benchmarks are set, how often they change, and whether caps or collars apply. Finally, factor in legal and valuation costs, and consider the resilience of your budget if rates, rents, or property costs move against you. A calm, well-documented decision today will help you stay confident throughout ownership.

Alternatives to consider

1. Fixed-rate conventional mortgage with ethical bank screening policies.
2. Credit union mortgage products with community focus.
3. Shared ownership with a housing association, then staircasing.
4. Family assisted purchase using gifted deposits or joint borrower arrangements.
5. Renting for longer while building a larger deposit.

Common questions, clear answers

Q: Are UK Islamic mortgages truly interest-free? A: Yes. The compliant structures avoid interest and use rent on the provider’s share alongside staged equity purchases. The economic effect differs from a loan charging interest.

Q: Who regulates these products? A: UK Islamic banks and relevant lenders are authorised and overseen by the FCA and PRA. Consumer protections apply, and eligible deposits may have FSCS coverage up to the statutory limit.

Q: Why are there fewer products than in mainstream lending? A: The market is younger and historically faced tax and structural frictions. Recent reforms and new refinancing routes are improving availability and competitiveness.

Q: Can non-Muslims apply for an HPP? A: Absolutely. Many non-Muslim customers value the ethical approach, transparent costs, and flexibility around early settlement and staircasing.

Q: What deposit do I need? A: Some providers accept from around 5 percent, though better pricing usually arrives with higher deposits and strong affordability.

Q: Can I remortgage into a Sharia-compliant plan? A: Yes. Many homeowners move from conventional mortgages to HPPs. Check fees, rent terms, legal costs, and any timing issues linked to your current deal.

Q: Will government buyer schemes work with HPPs? A: Selected schemes may be compatible. Always confirm in advance with your adviser and the provider to ensure the legal structure fits the scheme rules.

What to do next

If you are ready to compare options, ask a regulated adviser who understands Sharia structures to assess your budget and goals. Kandoo can introduce you to specialists who will explain the terms in plain English, confirm Sharia oversight, and help you secure a fair, suitable plan without pressure.

Important information

This guide is for general information only and is not advice. Product availability, pricing, and eligibility change over time. Always seek personalised recommendations from a regulated mortgage adviser before making commitments or relying on indicative figures.