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The UK Islamic mortgage market has seen impressive growth over the last five years. Yet the market is still in its infancy and faces many obstacles. The Islamic mortgage market is now worth £164 million and is growing at an average rate of 68.1 per cent per annum since 2000, in comparison to the total mortgage market growth of 16.2 per cent.

With the Muslim community representing a substantial portion of the UK population, it is predicted that by 2009 the Islamic mortgage market will be worth £1.4 billion **. In 2003 the Islamic mortgage market began to accelerate further, with the abolition of the payment of double stamp duty. Today there are at least five lenders active in market including HSBC and Lloyds TSB.

There are still many obstacles to clear:

• The FSA does not regulate Ijara mortgages, financiers continue to face adverse capital weighting treatment of Ijara finance plans. As a result Islamic mortgages are still not as competitive as traditional mortgages. This is something must be addressed.
• There is still a lack of customer awareness and understanding of Islamic mortgages.
• Islamic mortgages prohibit the customer from receiving housing benefit.
• They are preventing individuals from purchasing under the right to buy scheme.
• Finally, the lack of compliant Muslim insurance products on the market makes these mortgages less appealing.

New changes however are on their way to resolve some of these problems. The introduction of the UK parliamentary Regulation of Financial Services Bill is likely to make Ijara mortgages a reality; lenders are optimistic of the change in capital weighting. The ODPM is looking to integrate Islamic mortgages into the right to buy scheme. And finally, as more lenders enter the market it should make it more competitive, drive down costs, making the Islamic Mortgage comparative competitive with conventional mortgages.

Source for statistic: 'UK Islamic Mortgage 2005'  published July 2005 by Datamonitor.

 

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