How it differs from conventional bridging
Islamic finance principles prohibit the charging of interest, known as riba. Sharia-compliant providers structure their finance so that their return comes from a trade, lease or partnership in the property rather than from lending money at interest. The cost is expressed as a profit rate, which for bridging is commonly quoted monthly, in a similar way to conventional bridging rates.
Each provider decides how its products are structured and is typically overseen by a Sharia supervisory board or adviser, who confirms the products comply with its interpretation of Islamic principles. Whether a particular product is acceptable to you is a personal and religious matter, and you may wish to take advice from a scholar you trust. We describe how the products work, but we do not give religious advice.
Common structures
Providers use a small number of recognised structures for short-term property finance. The details vary, so it is important to read each provider's documents carefully.
- Murabaha: the provider buys the property and sells it to you at an agreed higher price, paid at the end of the term. The difference is the provider's profit, fixed at the outset.
- Ijara: the provider buys the property and leases it to you for the term, with the rent forming its return, and the property is transferred to you when the finance is repaid.
- Musharaka: the provider and you share ownership, with the provider's share and return set out in the agreement.
Because the provider may hold title or an interest in the property during the term, the legal work involves more documents than a standard bridge. UK tax law includes provisions for alternative finance arrangements so that, where the conditions are met, stamp duty land tax is not charged twice on the transfers involved. Your solicitor and tax adviser should confirm how this applies to your case.
What providers look at
The underwriting is similar to conventional bridging. Providers look at the property, the amount requested against its value, the term and the exit. Finance is typically available up to around 70% to 75% of value for residential property, with lower figures for commercial property and land, and for refurbishment the facility may be sized against the value after works.
Some providers apply stricter credit criteria than many conventional bridging lenders, for example declining recent defaults or county court judgments. Some lend only in certain parts of the UK or only to UK residents and UK companies. Late payment charges are usually structured differently too, with some providers donating them to charity rather than keeping them as income.
The choice of providers is narrower than for conventional bridging, so checking eligibility early avoids wasted time and costs.
Exit and longer-term finance
As with any bridge, the provider will want to see how the finance will be repaid. The usual exits are a sale or a refinance onto longer-term finance. If you want the longer-term finance to be Sharia-compliant as well, check early that a suitable product is available for the property type and your circumstances, as the range of Islamic buy-to-let and commercial finance is smaller than the conventional market.
Allow time in the term for works, valuation and the legal work on the refinance, which can involve more steps than a conventional remortgage. We compare providers on the profit rate, fees, structure and eligibility, and present your case clearly. Instant Quotes gives indicative figures as a starting point, and final terms depend on each provider's valuation and checks.
If you or your family will live in the property
If the borrower is an individual or the trustees of a trust, and the property is, or will be, lived in by you or a close family member, Sharia-compliant finance is regulated in a similar way to a mortgage, through home purchase plans and related arrangements, with additional protections. We will tell you at the outset if that applies and how your case will be handled.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
