Since, the Islamic mortgage market is to grow at a rate of 47% a year, it could be worth £1.4 billion by 2009. Banks are vying to attract Britain’s Muslims says Datamonitor is a market research group.

After Ahli United, United National Bank and Alburaq Home Finance have entered into the competition. HSBC, as well as Lloyds TSB are now offering home loans being sharia-compliant. Maya Imberg at Datamonitor said that the HSBC and the Lloyds TSB have done great things by entering into the fray, as it is good for the development of the Islamic mortgage market. She said that the loans would be increasingly competitive.

The cost of Islamic mortgages are anything from 1 to 2 per cent more than the cheapest conventional home loans. Sharia is violated by conventional mortgages. This is so because the Islamic law doesn’t permit the paying of interest. There are two ways to avoid this. The first way is called ijara. HSBC and Lloyds try to refrain from charging interest. They do this by buying property straight away and then renting it to the mortgage holder. After this they handle the legal ownership until the contract finishes. In this system, one could sell the property at any time.

The second method is called murabaha. It involves the bank, which buys and then sells the property to the customer at a fixed mark up price. Currently, the Financial Services Authority controls this system. Unqualified advisers could sell the mortgage, as the scheme falls outside the norms.