A guide to Islamic mortgages vs conventional mortgages | WIS Mortgages
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21st April 2023

A guide to Islamic mortgages vs conventional mortgages

There are a number of mortgage products available on the market, so when you're looking to buy a property, it can sometimes be hard to work out which one will best suit your circumstances. Finding out the differences and advantages of a range of mortgage options is always a good idea, so the two we're going to look at today are Islamic mortgages and conventional mortgages.

Read on to find out more about the differences between an Islamic mortgage and a conventional mortgage and which is the best option depending on your situation.

What is an Islamic mortgage?

An Islamic mortgage is one that bears no financial interest, meaning it's in accordance with Islamic laws. Technically, it's not a mortgage, so it's also commonly referred to as a home purchase plan or a sale and lease agreement. While it has the same purpose as a conventional mortgage, the agreement allows those who practise the faith to own their own homes in accordance with their religious beliefs.

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What is the difference between an Islamic mortgage and a conventional mortgage?

The main purpose of an Islamic mortgage is to account for the ethical and religious values of those who follow the Islamic faith. There is one law, in particular, that affects mortgages, which is the Sharia law. This states that making 'money from money' is not allowed, so for this reason, conventional mortgages are forbidden because they accrue interest.

Here are some other factors to consider when looking at the difference between Islamic mortgages and conventional mortgages.

Interest rates

One of the most obvious differences between the two types of mortgage is the amount of interest on the loan. The average interest rates on conventional mortgages are between 4% and 7% in 2023, but if you have an Islamic mortgage, you won't pay any interest at all. Rather than monthly mortgage repayments, you're essentially making rental payments to the bank, which will have bought the property on your behalf. Paying rent is halal, meaning it's accepted under Islamic law.


The fees involved in both types of mortgages are very similar. An Islamic mortgage comes with administration costs, valuation fees, legal fees and stamp duty – all the same payments that will need to be made if you take out a conventional mortgage.

However, Islamic mortgages can be more expensive because the lender normally has to cover the administration costs themselves. What's more, you'll likely require a larger deposit for Islamic mortgages, usually somewhere between 10% and 35%. Compared to the 5% to 10% required for conventional mortgages, this is quite a significant difference.


Much like a conventional mortgage, once the debt is paid off in full, you will own your home outright.

Application process

The application process for both mortgages is very similar, but the key difference is the number of lenders who offer Islamic mortgages. There are fewer of these mortgages available, so you may need to go to a specialist mortgage broker for advice on applying for one.

What kinds of Islamic mortgages are there?

There are three kinds of Islamic mortgages that you can choose from. Each is slightly different, so you need to consider the benefits of each one to ensure you're choosing the option that best suits your preferences and situation.

Ijara (lease)

This is when the bank buys the property for you and you lease it from them. You will pay an agreed rate each month until the full amount has been paid off. Once the entire amount is clear, you will own the property outright.

Musharaka (partnership)

Essentially a co-ownership agreement, both you and the bank own separate shares of the property. Every time you make a repayment, which is part rent and part capital, you are increasing your share. As time goes on, the amount of rent you pay will continue to reduce until you own the property entirely.

Murabaha (profit)

This type of mortgage is when the bank buys the property that you want and then sells it back to you at a higher price. You will pay this back in instalments until you have paid off the entire amount. One benefit of this option is that you know how much you will be paying each month, as you are charged equal amounts over a fixed period. Murabaha is most commonly used in order to buy commercial properties.

Looking for an Islamic mortgage? We can help

If you think that an Islamic mortgage is the best option for you, make sure to get in touch for free initial advice from our team. We are more than happy to answer any queries you have about your specific situation. You can also use our mortgage calculators (see the footer of our website) to get a more accurate idea of how close you are to being able to afford your own home.

We cover the whole of the UK, working as a mortgage broker in Kent, London, Essex, Buckinghamshire and more. No matter where you are based, WIS Mortgages can offer specialist advice for contractors and the public alike, so you can rest assured we're the right team for the job.

Here at WIS Mortgages, we also have an accountancy arm, WIS Accountancy (accountancy is not regulated by the FCA), and an insurance arm, WIS Business Protection, Wealth and Pensions.

As a mortgage is secured against your home/property, it may be repossessed if you do not keep up with the mortgage repayments.

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