Islamic Mortgages

Effect of Islamic Mortgages on the Property Market

The value of the Islamic mortgage sector in the UK has increased from £40 million in 2002 to an anticipated £1.4 billion by 2009. The opportunity for the UK’s 1.8 million Muslims to obtain Shariah compliant mortgage finance from high street banks and other financial institutions is bound to have an effect on the demand for property in areas with high Muslim populations, for example, London with 725,000 Muslims out of a total population of 7.2 million and Leicester with 55,000 Muslims out of a total population of 280,000.

High property price inflation is already occurring in neighbourhoods with a large proportion of Muslim inhabitants. For example, in the Highfields area of Leicester, a three-bedroom terraced house that could have been bought for about £60,000 in 2000, would, at the beginning of 2007, cost at least £120,000.

Before Islamic mortgages became available from financial institutions, property price inflation was lower in predominantly Muslim districts than in other areas. As a result of the availability of Islamic mortgages, it would appear that mortgage debt levels among Muslim families will come closer to those of the rest of the UK population, as more of them become obliged to fund their property purchases with mortgages from financial institutions.

Sustainability of Islamic Mortgages
The UK property market has been relatively benign since the introduction of Islamic mortgages, with steady growth in property prices and few repossessions by mortgage providers. Some commentators have expressed concerns that if economic conditions in the UK deteriorate, the Islamic mortgage market would become as exposed as the conventional mortgage market, if not more so, because Islamic mortgage holders would have fewer options to ‘borrow their way out of trouble’.

In spite of these caveats, it would appear that the Islamic mortgage market in the UK is here to stay.

Summary:
The value of the Islamic mortgage sector in the UK is rising rapidly;
property price inflation is occurring in predominantly Muslim neighbourhoods, fuelled by Islamic mortgages;
uncertainty exists regarding how the Islamic mortgage market would fare during an economic downturn.