A better understanding of shariah-compliant finance is needed in the industry to ensure brokers have the widest range of options available to get the best deals for their clients, according to Gatehouse Bank.
Paul Stockwell, chief commercial officer at Gatehouse, said the Shariah-compliant lender had built a "growing position" in the home finance market from a standing start in 2018, but noted it was clear the industry needed more education on how Shariah-compliant finance worked and the possible deals available for all clients, not just those following the Islamic faith.
He said: "It is clear from recent research carried out by the bank that we need to work harder to ensure that people understand how Shariah-compliant finance works.
"We need to provide potential customers with easy-to-understand information about what Shariah-compliant finance is, and the benefits it can offer them."
Some brokers have told FTAdviser they are already considering the products for their clients, with good deals available particularly for expat clients.
Shariah-compliant products mirror traditional financial services, such as mortgages and savings account, but are in line with the Shariah principle that money should not in itself generate money.
Chris Sykes, mortgage broker at Private Finance, said Gatehouse Bank was near the top of the list for his international or expat clients.
He added that Al Ryan, another Shariah-compliant lender, was also very flexible in both residential and buy-to-let for those looking to buy from overseas.
He said: “They are really good within that sector. Most of the time it’s the flexibility that we’re going for because of the criteria the company has.
“Brokers who have such clients but bypass Gatehouse Bank or other Shariah products would be missing out.”
Mr Sykes said Gatehouse was willing to lend to borrowers from a range of different countries, including some “niche” states which other lenders did not include in their criteria, and said the bank’s flexibility was good.
For example, the bank had a minimum property value of £100,000 — whereas most other expat lenders had larger sums — and the minimum income was £25,000 compared with most lenders' minimums of £50,000 or higher.
In the buy-to-let space Gatehouse will lend to expats through limited companies and provide a flexible rental calculation, focusing on rental return rather than affordability tests.
The products also have no early repayment charges and are available to employed, self-employed and contracted UK residents.
Mr Sykes added: “It can be a really good option for the right client, particularly in the buy-to-let space.”
Alan Lakey, director at Highclere Financial, said any bank working in the expat buy-to-let space was “very valuable” as brokers often struggled to find suitable policies for such clients.
Shariah-compliant home purchase plans mirror conventional mortgage products, but do not deal in terms such as ‘interest’ and ‘repayment’.
Instead, the bank offers two types of home purchase plans; ‘acquisition and rent’ — which is similar to a conventional repayment mortgage — and ‘rent only’, which is similar to an interest-only policy.
With ‘rent only’, the bank buys the property in partnership with the customer and charges rent on the portion of the property the customer doesn’t own.
If the customer wants to pay off the capital over the term of the policy, an ‘acquisition and rent’ policy means the customer pays an additional monthly amount to gradually acquire the bank’s stake over the finance term.
As the bank’s portion shrinks, the rent the customer pays also reduces and the bank transfers ownership to the customer at the end of the term or when the customer has bought the bank’s share in full.
Gatehouse recently launched online educational videos, for brokers and consumers, which explain how Islamic finance products work.
This came after the bank's research found that 46 per cent of UK muslim consumers had not used Shariah-compliant products.
David Hollingworth, director at L&C Mortgages, thought Gatehouse could potentially build a name for itself around the expat and international community.
He added: “There are early repayment charges-free products on the main market as well, on top of good expat and international mortgages.
“If you’ve got all the elements adding up — you want an early repayment charge-free buy-to-let product for an expat — then that’s when it starts to be the right product.”
He also thought Islamic banks had made a good name for themselves within the savings world, as their ‘interest’ rates had “tended to get the spotlight” because they had been “up there” with the best rates on the market.
Data from Moneyfacts, published earlier this year (April 1), showed the best deals within the one-year and two-year fixed bonds market were dominated by Islamic banks, at a time where high street banks were struggling to offer good savings rates.
imogen.tew@ft.com
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