In Islamic Mortgages Can Banks Decide Rental Based on Interest Rate

Faith IQ

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Shaykh Abu Eesa discusses

Episode Transcript

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In Islamic mortgages, when a bank goes into a purchase with you, can they decide the rental rate that they charge you based upon the prevalent interest rate?

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That was a mouthful. And I've seen hundreds and hundreds of people just turn off right away the light wall enough for that business. Yes, it's a technical point. But there are a lot of people that are interested in this. And they have this kind of real issue with the idea that how can a Muslim company or some bank or any organization is offering an Islamic mortgage, which and how do they do these Islamic mortgages, the majority of them are effectively a bank and the purchaser, you, you go into partnership and buy a house 80% 20%. And then they will rent their share to you to live in whilst giving you an opportunity to pay them back and buy them out. That's fine. The rent charge,

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though, they will assess every year or every six months. And on what basis they're very open about it, they'll use the current interest rate that we use live, but they will use the interbank lending rate that's happening between the banks as a benchmark to set the their rental rate, ie the amount of money that they will charge or as a percentage on top of what they will expect you to pay.

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Now, normally, if I own a house, and I've got tenants in it, and I say I'm charging them 500 pounds a month, and then the year comes around, I look around now look at the other houses and I decide you know what the house is going up, rental rates have gone up by 10%. That's what the market is saying. So I then now charge by 50. And then I keep going and then maybe I see the rents go through the roof everywhere around and I'm Yanni still miles away. So I now say right, I'm charging 800 pounds. What am I using as my benchmark but generally the market forces no one would have a problem with that. The problem they're saying now is that when you're using interest, you're using interest. That's

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what I'm saying. Yeah, interest is haram. But I'm not charging interest. I'm just using interest as a as a kind of indicator or a benchmark of what is an acceptable level of profit. So that is permissible, it is permissible for you to do that. And one of our teachers gave a very excellent example. He said that if there were two brothers that owned a alcohol business, one of them then realized this is haram and the other guy won't stop it and he carries on. So the brother then leaves the business and he says I'm going to open up a milkshake or fruit juice place. But then he remembers his experience from the alcohol selling and he remembers that he was selling these and

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marking them up by 25% is it permissible for him to match his brother's haram business of marking up 25% profit on the drinks and use that same margin of profit for the fruit juices and milkshakes when of course it is because he's not selling alcohol is just using the comparative a benchmark of profit and just like it's permissible to use it haram one day for your holiday products. So it is for Islamic mortgages as well. Of course we discussed this in much more detail on pure bear. So this is just a brief explanation. It's fascinating area of violence and Islamic Finance and

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money transactions and earning and spending but this is I hope clear. Thank you for watching. Please subscribe to the channel and like the videos so that you can get notified of the new releases and consider donating to this worthy cause.