New legislation increases fairness for Muslim homebuyers

Islamic consumers will benefit from new legislation before Parliament today which aims to create a level playing field for the regulation of Shari’a compliant home finance products.

The changes will ensure that Muslims who buy Ijara Shari’a compliant home finance products will be able to access the same benefits of FSA protection that other consumers currently enjoy.

The move is in line with the Government’s desire to help facilitate the development of Islamic finance in the UK and follows Budget measures to further ensure fair tax treatment for Shari’a compliant financial products.

Speaking about the legislation, Economic Secretary to the Treasury Ivan Lewis MP said: “Buying a house is one of the most important financial decisions that people will make. It is crucial that Muslim consumers making use of Ijara products to buy their houses are offered the same level of protection as everybody else.”

Notes for editors

1. Shari’a compliant current accounts, savings accounts, and house purchase facilities are now offered by both Islamic and high street banks. They do not involve the payment or receipt of interest, but are based around different structures, such as sharing profits and gains.

2. An Ijara home finance product is one where a financial institution purchases the chosen property, and the individual agrees to pay back the exact purchase price either over a period of up to say 25 years or at the end of the payment term. Ownership of the property remains with the lending institution until the payment term is up and the individual also pays rent to the financial institution over the payment term. The individual becomes the owner of the property once the purchase price paid by the financial institution is repaid. The financial institution makes its profit from the rent paid, which is seen as a fair payment for use of the property rather than a charge for borrowing money. This is an arrangement not currently caught by FSA regulation.

3. The Regulation of Financial Services (Land Transactions) Bill receives its Second Reading in Parliament today.

4. Media enquiries should be addressed to Will Straw at the Treasury press office on 020 7270 4420.

5. Non-media enquiries should be addressed to the Treasury Public Enquiry Unit on 020 7270 4558.

6. This press release and other Treasury publications and information are available on the Treasury website at www.hm-treasury.gov.uk. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.