Shariah-compliant bank Gatehouse has launched its first mortgage product as an alternative to traditional mortgages.
The two-year fix is offered to homebuyers with a minimum 50 per cent deposit or those looking to refinance.
As a Shariah-compliant bank, Gatehouse does not charge interest, instead the bank and customer are joint owners of the property and the homebuyer pays rent on the share of the property the bank owns.
Customers have the option to acquire & rent, which is the equivalent of a conventional capital and interest mortgage, or to rent only, which is the equivalent of a conventional interest-only mortgage.
The rental rate offered is 3.19 per cent, reverting to the bank’s standard variable rate, which is currently 5.50 per cent, after the fixed term. There is no early settlement charge.
Charles Haresnape, CEO of Gatehouse Bank, said: "Launching our first home purchase plan product is a milestone for the bank, as this further increases the range of financial services that we are able to offer individuals.
"We aim to bring additional competition to the home finance market and, due to our Shariah principles, we will not be charging early settlement charges on our home purchase plans, which we believe will prove to be a popular feature with many homebuyers."
He added the bank wanted its products to appeal to Muslims and non-Muslims alike.
Gatehouse pointed to the product's similarities with shared ownership offerings, but said with its product additional portions of the property were bought at the original purchase price rather than the current market value.
Gatehouse's product will also be available to expats at a 3.75 per cent initial rental rate and international customers at a 3.99 per cent initial rental rate.
UK homebuyers can access the mortgage if the property has a minimum value of £50,000, and for ex-pats and international clients the minimum home value is £100,000.
Application fees also vary depending on homebuyer circumstances, with UK residents paying £499, ex-pats £699 and international clients 1.50 per cent.
The product will initially be available directly from the bank and through broker One Option Finance.
Following an initial pilot period, Gatehouse plans to roll out a wider range of products in early 2019, made available to all its intermediary partners.
Mr Haresnape said: "I’m confident that our pilot will be successful and we are planning to launch a fuller range of products early next year."
Ray Boulger, senior technical director at John Charcol, said: "Shariah-compliant products tend to suffer in comparison with standard mortgage equivalents. This makes them rather specialised and invariably only suitable for strict Muslims.
"Based on the initial rate, I’d say this is one such example."