For doctors and GPs, finding the right mortgage solution can be challenging, especially when considering the unique circumstances that come with their profession. For example the different types of contract available and the various enhancements to basic pay for shift work.
There can also be personal factors which we need to consider around borrowing money. One example of this is Islamic views on finance and Islamic law.
In this blog, we will provide an overview of Islamic finance and Shariah mortgages in the UK and their benefits for doctors and GPs. We will also discuss the factors you should consider when choosing the right Shariah mortgage for your situation, including your employment status, income, and other financial considerations.
Islamic finance is based on the principles of fairness, equality and justice and the idea that money has no intrinsic value. As part of their faith, a Muslim cannot lend money or receive money and expect to benefit from it. This includes interest on a loan or mortgage. It is believed that making money from money is forbidden and wealth should be generated through legitimate trading and investments and in an ethical manner.
These principles are reflected in the operations of Shariah-compliant financial institutions. There are now a number of established banks in the UK which adhere to the religious laws Muslims practice and offer shariah-compliant services.
In this section, we will provide an overview of how the Islamic finance principles are applied to mortgages.
Unlike traditional mortgages that involve borrowing and repaying a loan with interest, Shariah mortgages operate on the principles of Ijara and Murabaha.
An Ijara arrangement (or a home purchase plan) is a common shariah-compliant way of buying a home. A property is bought jointly by a customer and an Islamic finance institution. Once the sale has completed, the customer will make monthly payments which comprise part capital towards the share owned by the bank and part rent for residing in the house. At the end of the term, the accumulated payments made by the customer will be used to purchase the bank's share in full and become sole owner.
Under this arrangement, a lender will buy a property at an agreed price and then immediately sell it to the customer at a slightly higher price. The monthly repayments will then be fixed for the agreed term to gradually buy the property from the lender. As you can see, the distinct advantage of this is that there is no interest charged.
Whether you are a PAYE doctor, a locum doctor, or work through a limited company, there is a Shariah mortgage solution that can meet your needs. By considering your unique circumstances and seeking professional advice, you can ensure that you find the right mortgage solution to finance your home and secure your financial future.
As you can see, these types of arrangement for financing a home purchase do not involve payment of interest. There is also the opportunity to keep payments fixed for the term of the arrangement. The terms are agreed at the start of the contract.
This differs from a traditional mortgage where you select the overall term at outset but the interest rate and therefore repayments will vary during that term.
The majority of lenders offering shariah mortgages require a deposit towards a purchase of 20% or more. This differs from traditional mortgages which can accept a deposit as low as 5% of the purchase price.
There are fewer lenders offering Islamic mortgages than traditional so this does restrict options.
There are many aspects to arranging a mortgage and some of these are particularly relevant for doctors and GPs.
Any lender will need to understand your employment situation, are you self-employed, permanent or contracted? Perhaps you are a locum and have a variable income. Many doctors also receive enhancements for weekend and night working which all lenders will view slightly differently. We have expertise in this area and matching you to the appropriate lender.
If looking for a shariah-compliant mortgage, we would also need to factor these personal values in to researching the appropriate lender for you.
Ultimately, choosing the right mortgage solution for your needs requires careful consideration and planning. Whether you are a doctor or GP, it is important to understand your specific needs and circumstances and to compare different mortgage options to find the one that is best suited to your needs. With the help of a financial adviser or mortgage broker with expertise in Islamic finance, you can ensure that you find the Shariah mortgage that is right for you, and that you have the support and guidance you need to navigate the mortgage process.
If you would like to arrange a conversation with one of our advisers, please book a video call here
