If you're a Muslim buyer in the UK, you've probably run into the same wall everyone else does: conventional mortgages charge interest, and interest — riba — is prohibited in Islam. The good news is that you don't have to choose between owning a home and following your faith. A Sharia compliant mortgage, officially called a Home Purchase Plan (HPP) in UK law, lets you buy property without taking out an interest-bearing loan.

This guide walks through exactly how these products work, which UK providers currently offer them, what a realistic deposit and monthly cost look like, and the practical steps to apply — so you can go into the process with clear expectations rather than confusion.

What Is a Sharia Compliant Mortgage?

A Sharia compliant mortgage is a way of financing a property purchase without paying or receiving interest. The UK's Financial Conduct Authority (FCA) doesn't use the word "mortgage" for these products at all — its official term is a Home Purchase Plan (HPP). The name matters, because an HPP isn't legally structured as a loan. It's structured as a joint purchase, followed by a lease or a gradual buy-out, depending on the model the provider uses.

Why Conventional Mortgages Are Not Permissible

In a standard UK mortgage, the bank lends you money and charges interest on the outstanding balance. That interest is riba, and the Quran and hadith are unambiguous in prohibiting it. Sharia scholars have also raised concerns about the excessive uncertainty (gharar) built into some conventional lending terms. An HPP is designed to sidestep both issues by replacing "interest on a loan" with "rent on a jointly-owned asset."

How a Home Purchase Plan Works, in Plain English

Instead of borrowing money, you and the finance provider buy the property together. You put down a deposit — your share — and the provider funds the rest. You then pay the provider two things each month: rent on the portion of the home you don't yet own, and an acquisition payment that gradually increases your ownership share. Over time, your share grows and the provider's share shrinks, until you own the property outright.

The Main Sharia-Compliant Structures Used in the UK

Not every HPP works identically. Providers rely on one of a few underlying Islamic finance contracts, and it's worth knowing the difference because it affects how ownership and risk are shared.

Diminishing Musharaka (Co-Ownership)

This is the most common structure among current UK providers. You and the bank become co-owners of the property from day one. Each monthly payment you make buys back a further slice of the bank's share, while you pay rent on whatever share remains with the bank. It's called "diminishing" because the bank's ownership diminishes with every payment, until it reaches zero.

Ijara (Lease-to-Own)

Under an Ijara structure, the provider buys the property and leases it to you, with a schedule of payments that eventually transfers ownership to you at the end of the term. It functions similarly to Diminishing Musharaka in practice but is structured as a lease agreement rather than pure co-ownership.

Murabaha (Cost-Plus Sale)

Less common for UK residential purchases today, Murabaha involves the bank buying the property and then selling it on to you at an agreed, fixed mark-up, which you repay in instalments. Because the mark-up is fixed at the outset rather than reviewed periodically, this structure is more often seen in commercial or short-term Islamic finance than in standard UK home purchase plans.

Who Offers Sharia Compliant Mortgages in the UK Right Now

The list of active providers has shifted in the last couple of years, so it's worth being precise here rather than repeating outdated "best of" lists you might find elsewhere.

Gatehouse Bank

Gatehouse Bank is currently one of the most active providers of new Home Purchase Plans in the UK. It uses a Diminishing Musharaka structure, accepts gifted deposits from immediate family, and offers both residential and buy-to-let products.

StrideUp

StrideUp offers a co-ownership model aimed particularly at first-time buyers, with deposit requirements starting lower than many traditional Islamic banks, and a focus on helping buyers build equity incrementally.

Other Active Providers

• Offa — an FCA-authorised Islamic fintech offering Sharia-compliant property finance decisions.
• Wayhome — a shared-ownership style alternative with an interest-free structure.
• Kuwait Finance House (UK) — typically serves higher-value residential purchases, often in London.
• Habib Bank AG Zurich — active in buy-to-let and commercial Islamic property finance.
• Bank of London and The Middle East (BLME) — supports asset-backed Islamic finance, though residential HPP availability can be more limited.

A Note on Al Rayan Bank

Al Rayan Bank (formerly Islamic Bank of Britain) was for years the UK's best-known Islamic retail bank and the largest HPP provider. That's changed: Al Rayan has paused new retail Home Purchase Plan applications and has shifted its focus toward institutional and high-net-worth clients, including larger London purchases. If you already hold an Al Rayan HPP, your existing arrangement continues as normal — but if you're a new buyer researching options today, you'll want to start with Gatehouse Bank, StrideUp, or one of the other active providers listed above rather than assuming Al Rayan is still taking new residential applicants.

How Much Deposit Do You Need?

Deposit requirements vary by provider and by your circumstances, but as a general guide:

• Some providers now accept deposits from around 10% of the property value for straightforward first-time buyer cases.
• Many mainstream Islamic banks still expect somewhere between 15% and 35%, particularly for buy-to-let or higher-value properties.
• Gifted deposits from immediate family (parents, spouse, grandparents, or children with independent income) are accepted by most major providers.

Stamp Duty and Sharia Compliant Mortgages

One question that trips up a lot of first-time buyers: because an HPP technically involves the bank "buying" the property and then transferring it to you at the end, does that mean Stamp Duty Land Tax (SDLT) gets charged twice?

The answer is no. UK legislation specifically addresses this under the alternative property finance rules in the Finance Act 2003. When a Home Purchase Plan is used, SDLT relief applies so that you only pay stamp duty once — broadly in line with what a conventional buyer purchasing the same property would pay. Standard SDLT thresholds and first-time buyer relief still apply to your purchase price in the normal way; the HPP structure itself doesn't create an extra tax charge.

Is a Sharia Compliant Mortgage Regulated?

Yes. Home Purchase Plans are regulated by the Financial Conduct Authority (FCA) under the same Mortgages and Home Finance: Conduct of Business (MCOB) rules that apply to conventional mortgages. That means you get comparable consumer protections — affordability checks, clear disclosure of costs, and access to the Financial Ombudsman Service if something goes wrong.

On top of FCA regulation, reputable Islamic banks and providers maintain an independent Sharia Supervisory Board — a panel of qualified scholars who review and approve the contracts and structures used, to confirm they genuinely comply with Islamic principles rather than simply relabelling a conventional loan. When comparing providers, it's worth checking who sits on their Sharia board and whether their rulings (fatwas) on specific products are published.

Sharia Compliant Mortgage vs Conventional Mortgage

How to Apply for a Sharia Compliant Mortgage: Step by Step

1. Work out your budget. Use a provider's affordability calculator to get a realistic sense of how much you could be offered, based on income, outgoings, and deposit.
2. Get an Agreement in Principle (AIP). This gives you a provisional figure to work with when house-hunting and shows estate agents you're a serious buyer.
3. Find your property and make an offer. Once accepted, you'll move to a full application.
4. Submit full documentation. Expect to provide proof of income, bank statements, ID, and deposit source — similar to a conventional mortgage application.
5. Valuation and underwriting. The provider arranges a survey and assesses the application against its lending and Sharia criteria.
6. Legal work. You'll typically need a solicitor experienced in HPP transactions, since the legal documentation differs from a standard mortgage (often involving a co-ownership agreement alongside the lease).
7. Completion. Funds are released, the property is jointly registered, and you begin your monthly rent and acquisition payments.

Common Mistakes to Avoid

• Assuming every "Islamic bank" still offers the same products it did two years ago. As the Al Rayan example shows, this market changes — always confirm current availability directly.
• Using a solicitor unfamiliar with HPPs. A conveyancer who hasn't handled co-ownership or Ijara structures before can slow down your completion significantly.
• Not comparing the effective rental rate across providers. Even though there's no "interest rate," you should still compare the total cost of finance between providers, the same way you'd compare APR on a conventional mortgage.
• Overlooking early settlement charges. Some providers apply a fee if you pay off your HPP early or make large overpayments outside the agreed windows — check this before committing.

Frequently Asked Questions