ODPM moves to make right to buy compliant with Islamic law

About 28,000 social homes could be sold to Muslims each year as a result of plans to offer Islamic law-compliant mortgages for right to buy and the Homebuy scheme.

As part of a consultation launched on Monday, the government will seek views on three Sharia-compliant mortgages, which could be adopted for use by Muslim social housing tenants who want to buy their homes. Instead of paying interest on the mortgage, which Islam forbids, Islamic “Ijara” mortgages allow the buyer to pay rent to the lender.

A group of London housing associations, including Sutherland Housing, began drawing up plans for a shared-ownership scheme for Muslims last year (HT 1 October, page 14).

Under the terms of these mortgages, full or part of the ownership of the home is transferred to the lender. But current right-to-buy rules say homes cannot be owned by a third party. The consultation proposes removing this restriction.

Right-to-buy legislation prohibits third-party ownership on the grounds that companies could exploit the rules by buying social housing cheaply to let at high rents.

An ODPM spokesman said: “The consultation is a starting point, we will be negotiating with a range of stakeholders and asking them if there would be enough protection – we think there would be because the compliant mortgages would be regulated by the Financial Services Authority.”

Housing minister Yvette Cooper said: “The government wants to widen the choice available to tenants who want to buy their own home, whatever their faith.”

Iqbal Asaria, financial affairs adviser to the Muslim Council of Britain, said: “I think it will become a preferred option for Muslims.”

About 140,000 Muslims live in social housing in the UK. The Muslim Council of Britain estimates that 20% would buy their homes if Islamic mortgages were permitted.

Although the consultation, which ends on 20 June, only applies to right to buy, the ODPM is understood to be considering similar proposals for the Homebuy scheme.