Ansar Housing has revealed the development of its Property Purchase Agreement, a form of contract that is free of interest and that accords with Islamic principles of contract law.
Under the Property Purchase Agreement, Ansar and the client will form a partnership under which both parties jointly purchase a property.
The home-buying client will then rent the property under a separate tenancy agreement for a specified period of time.
During the tenancy, the client can purchase some or
all of Ansar’s share in the property at market value.
Upon purchase of Ansar’s final share in the property, the client will become the full owner and rental payments will cease.
Both the returns enjoyed by Ansar and the financing costs incurred by home buyers will be linked to the performance of property prices and rental yields over the term of the contract.
Among the benefits of this approach is that a home buyer cannot experience “negative equity” in the event of a default.
In a wider economic context, because the financier’s asset is a share of the property, not a sum of money owed by its client, this form of risk sharing contract could bring greater stability to the United Kingdom property market if adopted more widely.
Financiers who are exposed to the risk of a fall in property prices would tend to be more cautious in their lending practices.
In the first three years after its availability, Ansar plans to finance up to 200 properties in the United Kingdom.
The average rental rate on its contract is expected to be between 6 and 7% per annum fixed for the term of the agreement. Terms can range from 7 to 20 years.
In view of the fact that Islamic home financing activities are to be brought within the regulatory supervision of the Financial Services Authority in the future, Ansar Housing Limited intends to apply to the FSA to become an authorised person.