The Principles of Sharia Compliant Mortgage Alternative Finance

Shariah principles promote trading and enterprise to generate real wealth for the benefit of the community as a whole. It does this in a way that provides stability, is transparent and facilitates sharing of both risk and reward in an equitable way. There are some key differences between Shariah and conventional finance and investments:

  • Finance and investments must not be used to support industries or activities that are against Shariah principles. These include alcohol, tobacco, gambling, adult entertainment and arms.
  • Money must be put to a good use to generate profit supported by a genuine trade or business related activity. The giving or receiving of interest (making ‘money from money’) is prohibited.

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How Sharia Compliant Mortgage Alternative Finance works in practice

Rather than paying interest on a bank loan used to purchase or refinance a property, the customer buys the property jointly with the Finance Provider. Each party has a stake, according to the amount each has contributed.

The customer leases the part of the property owned by the Finance Provider and pays a monthly rental payment. The Finance Provider is the registered owner of the property. At the end of the finance term, if all payments have been made, full ownership of the property transfers to the customer.

In Shariah finance, the process of buying an increasing share in the property is called Diminishing Musharakah. Musharakah means ‘joint venture’, an Arabic term that can be used to describe this type of property finance arrangement. Similar to the conventional mortgages, there are two types of Diminishing Musharakah arrangement – acquisition and rent only.

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Sharia Compliant Mortgage Alternative Finance
Sharia Compliant Mortgage Alternative Finance

Rent Only Diminishing Musharakah

Both the customer and the Finance Provider contribute a percentage towards the purchase or refinance of a residential property. The Finance Provider then leases its share in the property to the customer for the duration of the finance term. Over the finance term, the customer makes monthly payments to the Finance Provider which comprise of rent only. The customer is only obliged to purchase the share at the end of the finance term, so the customer’s share in the property remains the same throughout the term.

However, if the customer wishes to acquire a part of the Finance Provider’s share in the property during the term (subject to a specified minimum), the customer can do so on each rent review date. In addition, the customer can purchase the Finance Providers entire share and settle the facility at any time.

Until the Finance Providers share has been acquired by the customer, the Finance Provider charges the customer rent for the use of its share of the property. The rent is calculated according to the respective shares owned.

Following the customer’s acquisition of the Finance Provider’s entire share, either at the end of the agreed term or upon early purchase of the Finance Provider’s share of the property, they transfer registered ownership of the property to the customer. It’s the customer’s responsibility to put in place, maintain and regularly monitor any financial arrangements that are expected to provide a lump sum big enough to acquire the Finance Provider’s share at the end of the agreed finance term.

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Acquisition Diminishing Musharakah

Both the customer and the Finance Provider contribute a percentage towards the purchase or refinance of a residential property. The Finance Provider then leases its share in the property to the customer for the duration of the finance term.

Over the finance term, the customer makes monthly acquisition instalments – this is how the Finance Provider will sell its share of the property to the customer. With each acquisition instalment, the Finance Provider’s share in the property diminishes while the customer’s share increases.

While the acquisition instalments are being made, the Finance Provider charges the customer rent for the use of the bank’s share of the property, calculated according to the respective shares owned. After the customer acquires the Finance Providers entire share, either at the end of the agreed term or in an early purchase, the Finance Provider transfers registered ownership of the property to the customer.

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Sharia Compliant Mortgage Alternative Finance
Spinning Mill

Is there Capital Gains Tax liability with Buy-to-Let Sharia refinancing?

In respect of refinancing under a purchase plan, a share in the property to be financed is sold by the customer to the Bank (this share is then leased by the Bank to the customer).

We understand that, on a strict reading of the legislation, there is a potential capital gains tax charge (CGT) triggered by this sale. If there has been a gain in value for the customer since the property was purchased and no exemption applies, such as private residence relief, it is deemed a disposal for CGT purposes.

Our understanding is that HMRC are not known to apply a charge in these circumstances, given the overall intention of tax legislation that “purchase plans” should be treated in the same way as conventional financing for tax purposes.

However, the customer should, if they deem it necessary, seek their own tax advice or make representations to HMRC in this regard.

We are happy to provide any information required to assist with this.

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We can help you through the whole Expat Mortgage Application Process

Liquid Expat Mortgages with its experienced and qualified team of mortgage brokers can support you through the whole UK expat mortgage application process.

By working with you we can help minimise the disruption and contain costs when it comes to supplying the correct paperwork and identity requirements.

Save time and stress

  • We can work with the lender to present your case better and ensure an underwriter doesn’t make assumptions based on the fact you live and work abroad.
  • We will be able to talk you through the process on how best to present your mortgage application.
  • We can help you secure a more favourable rate when exchanging money across borders.

As a completely independent team of expat mortgage specialists – we have no obligations other than ensuring you receive the best and most valuable service from our team.

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Liquid Expat is your Specialist Expat Mortgage Broker

Liquid Expat Mortgages has been providing expat mortgages since 2007. Our many years of experience and relationships built up with lenders means that we can find the very best mortgage for your needs.

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Liquid Expat Mortgages Testimonials

Hear from some of our clients about their experience with Liquid Expat Mortgages.

Buy to Let Mortgages for Expats testimonial

­ I would like to thank you and the other behind the scenes staff at Liquid Expat for all your professional help with obtaining a mortgage for us which enabled us to make the purchase of this buy to let property.

Ephram / UK Expat in Israel
Buy to Let Mortgages for Expats testimonial

­ Buying a property overseas is not a stress free process, but Liquid Expat Mortgages has been instrumental in reducing my level of stress and ultimately securing a mortgage lender for me in the United Kingdom.

M.C / Foreign National in Hong Kong
Buy to Let Mortgages for Expats testimonial

­ I would like to commend the excellent support we received in our recent recent buy to let remortgage application which proceeded faster than we could have hoped. She kept us fully in the picture throughout.

R. Green / UK Expat in Portugal
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Liquid Expat Mortgages Reviews

Read reviews left by our clients on Google.

Based on 146 reviews
Isobel Hanning
Isobel Hanning
2023-01-18
We were very happy with Liquid Expat Mortgages. After living in Spain and hoping to buy a U.K. property we were advised by most that we wouldn’t qualify for a U.K. mortgage. Never the less LEM said they could help and we were supported from start to finish with a good mortgage offer on the table. Liam and Claire were fantastic throughout the whole experience and never hesitated to offer advice and support as we needed. We can’t thank them enough for all their help and time spent with us even to the end where Claire was helping our solicitor to ensure all would go through on completion day with the lender. Our solicitor was also recommended by LEM and was also fantastic. Our sale completed smoothly on the day and with no issues. I wouldn’t hesitate to recommend. Thank you again for everything.
Red Panda
Red Panda
2023-01-10
We have been using the services of Liquid Expat for over six years and cannot recommend them enough. The level of broker professionalism, expat mortgage knowledge, and, most of all--transparent communication--is exceptional. As expats, it's even more challenging trying to maneuver the requirements and products in the UK market; additionally, the current climate has made it even more difficult. Liquid Expat will help you with this! To give some shoutouts--John Squires is always our first point of contact, helping to identify the best products available, and his knowledge speaks for itself. Then there's the incredible duo of Claire Aspin and Liam Saul--they are absolutely brilliant. So patient, thorough, and attentive to all of the details that any non-trained eye might miss. Claire and Liam were invaluable to our recent remortgage. We have, and will continue to, recommend Liquid Expat to anyone seeking the highest level of expat mortgage advice. Thank you!
Poonam Thakkar
Poonam Thakkar
2023-01-04
Really good experience working with the team! Claire and Liam were very attentive, supportive and accommodating. Really good service for expats living abroad.
Wesley George
Wesley George
2022-12-22
Nicole Gallagher of Liquid Mortgages was very professional and knowledgeable in sourcing a lender for me to re-finance my flat in London. she got me the offer letter from the bank by coordinating to obtain all the required documents in a very efficient manner. I was happy with the offer & how Nicole dealt wit my case and would recommend her to my friends and family. Nicole went above and beyond to assist me as a client, when we hit a road block due to solicitors not being in a position to complete in time before the finance offer expired. but Nicole worked tirelessly to obtain an extension on the finance offer to make the completion successful. this was impressive considering the interest rates were going up and a new offer would have costed me thousands of pounds more. Nicole is an asset to any organisation and highly recommend her ability and excellent customer service.
Ahsan Vohra
Ahsan Vohra
2022-12-20
The organisation is very good and professional. They are supportive from beginning to the end of the process.
Wahid Fazil
Wahid Fazil
2022-12-19
Hi. My mortgage application was handled by Ms Nicole Gallagher, and she was absolutely brilliant. Any questions I had were answered straight away with a full explanation. Throughout the process, I was kept in the loop and advised on the best course of action. Even my solicitor has praised Nicole for her efficency and super quick responses. On two occasions, the solicitor of the seller questioned my intention to buy the property. Nicole replied and defended me and set him straight. The email was so well written that I couldn't have said it any better myself. Professional but straight the point! Nicole is excellent at what she does and did a brilliant job in handling my application. She was very efficient and always replied to my emails straight away. I will definitely be recommending Liquid Expats to my friends and suggest they ask for Nicole to handle their application. If in the future we decide to buy another property, I will definitely be asking for Nicole and only to handle my application. I would like to take this opportunity to thank Nicole for all her guidance and support. Her attention to detail and her professional advice. I feel she went above and beyond in making me feel part of the process by keeping me informed at each stage. She is a credit to your company and has set the bar very high! Thank you Nicole. Wishing you all the best for the future. Mr Wahid Fazil 5 Fountain Park Westhoughton Bolton BL5

Your guide to expat mortgages

As a specialist expat mortgage broker based in the United Kingdom, we can guide you through even the most complex overseas UK mortgage or remortgage process.

With over a decade of experience, we can quickly assess your case and then immediately place you with the most suitable lender and the best possible terms to suit your personal circumstances.

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Sharia Compliant Mortgage Alternative Finance Disclaimer
Please ask Liquid Expat Mortgages for more details as these fees will be tailored to your circumstances, please do not instruct your own solicitor, prior to obtaining a decision in principle on this option as the solicitor you choose should be experienced in Sharia Compliant Buy to Let mortgage alternative finance. We do NOT give financial, currency, tax or legal advice and confirm that You have taken such advice from an appropriate third party in relation to either a conventional mortgage or a Diminishing Musharaka Finance Product (DMPF) and the potential taxes that we do not give advice on include (not exclusively) income tax, stamp duty & Capital Gains Tax (CGT).