Shariah-compliant Gatehouse Bank has today launched its first homebuyer mortgage alternative, having secured regulatory approval.
In an initial pilot, 2-year fixes are being made available directly from the bank and through one broker – One Option Finance – with plans to roll out the products to the wider intermediary market later.
In Shariah law, the term ‘mortgage’ is not used, so the products are referred to as Home Purchase Plans, or HPPs.
Gatehouse entered the buy-to-let space earlier this year and had originally planned to introduce home loans in the summer.
Speaking to Mortgage Strategy, Gatehouse chief executive Charles Haresnape (pictured) says the bank has traditionally been a commercial lender but is focussing on expanding its reach.
“Adding the mortgage alternative took some time as we had to get fresh regulatory permissions but we are ready to soft-launch our product range.
“These products will appeal not only to the Muslim population but to all borrowers, as interest in our buy-to-let offering has proved. They are also available to overseas residents, which will add to the appeal as it can be difficult for borrowers living abroad – expats or international borrowers – to get any mortgage for UK properties.
“We have built a new system from scratch, including a broker portal, and plan to launch to all intermediary partners after the pilot.”
Charging interest to borrow or lend money is forbidden under Shariah law and so instead the bank and customer are joint owners of the property. The home buyer pays rent on the share of the property that the bank owns, similar to a shared ownership arrangement. However, there is no early repayment charge applied and the amount paid back by the borrower is the original purchase price rather than the current market value.
Gatehouse’s HPP product offers customers two options; Acquisition & Rent, considered the equivalent of a conventional capital and interest mortgage and Rent Only, seen as the equivalent of a conventional interest-only mortgage.
The new 2-year fix comes with an initial rental rate of 3.19 per cent, reverting to the bank’s SVR (currently 5.50 per cent) after the fixed term. The rental rate for expats is an initial 3.75 per cent, while for international customers it starts at 3.99 per cent.
The maximum finance-to-value (equivalent to LTV) rate is currently 50 per cent, but Haresnape says this will be increased over time.
The lender intends to look into offering further product ranges next year.