Special Features

How the Islamic home finance sector can respond in the Covid-19 landscape

Maisam Fazal | Al Rayan Bank
15th July 2020
Maisam Fazal Al Rayan
"The recovery we’ve seen will bring a sigh of relief to brokers, IFAs and intermediaries, who we know are speaking to clients again as a result of pent-up demand."

Despite the housing market showing positive signs of improvement following its freeze during the peak of the lockdown, the impact of a global pandemic has taken its toll. Mortgage approvals have dropped significantly according to Bank of England data and house prices in June were 0.1% lower than the same month last year.

That said, we can see from Rightmove’s latest House Price Index that despite an initial 94% drop in the number of sales agreed as restrictions were imposed, UK housing sales now sit just 3% down on the same period last year. Additionally, the country is seeing demand for new homes rebound 66%, with demand outdoing levels from before the lockdown.

Al Rayan Bank is experiencing similar levels of resilience, with enquires for our Sharia compliant Home Purchase Plans (HPP) and buy-to-let Purchase Plans (BTLPP) at a higher level in June than at any point in 2020. New commercial property finance applications are also at a significantly high level.

While new challenges undoubtably lie ahead, the recovery we’ve seen will bring a sigh of relief to brokers, IFAs and intermediaries, who we know are speaking to clients again as a result of pent-up demand.

And while the long-term impact of the pandemic will undeniably have a lasting impact on many facets of society, there are several key trends and opportunities that the intermediary market should latch onto.

Firstly, we’re seeing ambitious sustainability pledges from businesses to enable a ‘green’ recovery and this renewed drive to push the ethical and sustainability agenda forward extends to the finance and home finance sectors too. According to research commissioned by Al Rayan Bank last year, 37% of all British adults believe choosing an ethical financial service provider is as important as issues such as recycling, while 75% of all British adults believe living a more ethical lifestyle is important.

This heightened ethical awareness provides brokers and intermediaries with the opportunity to extend or leverage their existing portfolio. Our intermediary channel has grown rapidly over the past few years, having worked with brokers to reinforce our ethical, Sharia compliant proposition and articulate it to the wider market. Sharia compliant home finance providers such as Al Rayan Bank are ethical at their core given they solely focus on banking activities compliant with Islamic values.

HPPs are based upon Islamic finance principles of co-ownership and leasing. Unlike conventional mortgages, customers can buy or refinance property as a partner with Al Rayan Bank and pay rent on the share that Al Rayan Bank owns. Each monthly payment made increases the customer’s share in the property and at the end of the finance term, they will own their home outright. Our home finance products incur no early payment charges, also increasing their ethical appeal.

Additionally, we’ve grown our expat customer network in recent years, which is also owing to growth in our intermediary channel. According to a YouGov survey commissioned by Select Property Group, 77% of GCC investors agree that the UK is one of the top overseas property investment destinations, mainly due to the UK’s strong capital growth and high yields. Al Rayan Bank has seen our expat customer numbers grow significantly in recent years, and with the market back up and running, this is another segment of the market that intermediaries can take advantage of.

The intermediary market undoubtedly has a role to play as recovery mode kicks in, but there are challenges ahead, as there are for many aspects of the economy. Though we can’t fully determine the long-term impact on the housing market, it’s a resilient sector and there are a number of opportunities brokers, intermediaries and IFAs can unlock.


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