Buying a home in the UK without interest: the home purchase plan route

What makes a home purchase plan different from a mortgage?

A conventional mortgage is a loan secured on the house, with interest charged on the debt. A home purchase plan replaces the loan with a property transaction: the provider takes a legal or beneficial share, and the buyer pays for using that share plus regular purchases of it.

Because no money is lent at interest, scholars treat the return as rent or trading profit rather than riba. The risk transfer is real but limited: the provider owns part of the asset, yet the customer usually keeps responsibility for repairs, insurance and service charges.

Which Sharia contracts sit behind UK plans

Most UK providers use one of three structures. Ijara with diminishing musharakah combines joint ownership and a lease, where the bank’s share shrinks as the customer buys units. Pure ijara leases the whole property, while commodity murabaha (tawarruq) uses a metals trade to create a deferred-payment debt.

• Diminishing musharakah with ijara: used by Gatehouse Bank under the “Acquisition and Rent” label and by StrideUp through a co-ownership structure.
• Ijarah: Kuwait Finance House (UK) offers rent-only and amortising ijarah plans from £250,000.
• Commodity murabaha: used notably by Nomo (Bank of London and The Middle East) for property finance aimed at Gulf-based buyers.

How tax law treats the double purchase

A plan where the bank buys and later sells to the customer could trigger Stamp Duty Land Tax twice. Sections 71A to 73 of the Finance Act 2003 remove that second charge, so the customer pays SDLT once, at the same rates as a mortgaged buyer.

Scotland and Wales have their own taxes, Land and Buildings Transaction Tax and Land Transaction Tax, with equivalent alternative finance reliefs. First-time buyer relief and the surcharge on additional dwellings apply to HPP customers exactly as they do to borrowers using an ordinary mortgage.

Is the rent payment treated like interest?

For income tax and corporation tax, the alternative finance rules treat the provider’s return as equivalent to interest. This matters little for owner-occupiers, but landlords and companies should know that HMRC applies the same finance-cost restrictions to rent paid under an Islamic plan.

Who regulates Islamic home finance in Britain?

Home purchase plans have been regulated since 2007, first by the FSA and now by the Financial Conduct Authority. The sales standards in MCOB 4.10 cover advice, suitability, risk warnings and execution-only sales, and affordability checks follow the same logic as conventional residential mortgage lending.

Banks offering HPPs are also authorised by the Prudential Regulation Authority, which supervises capital and liquidity. Complaints go first to the provider and then to the Financial Ombudsman Service. Buy-to-let purchase plans for investors generally fall outside FCA regulation, as Gatehouse states on its own pages.

Which providers actually lend in 2026?

The retail market is small. Gatehouse Bank finances houses and flats in England and Wales from £75,000 to £5 million, with terms up to 40 years. StrideUp offers a co-ownership plan certified by Amanah Advisors and is authorised by the FCA under reference 785299.

Kuwait Finance House (UK), formerly Ahli United Bank UK, converted to fully Islamic banking in August 2024 and focuses on London and the Home Counties. Nomo, a digital brand of Boubyan-owned BLME, targets Gulf residents buying in the UK. AlRayan Bank now serves mainly Gulf-based Premier clients.

Honest limits of the UK offer

Choice is narrower than in the mortgage market, and pricing often sits above the cheapest conventional deals because funding costs are higher. Some providers accept only England and Wales, few cover Scotland or Northern Ireland, and shared ownership or right-to-buy cases are rarely accepted.

Checking that a plan is genuinely compliant

Each provider publishes the name of its Sharia supervisory board or external adviser. Buyers who want extra comfort can read the fatwa or certification, check how late-payment charges are handled, and confirm whether the rent is benchmarked to the Bank of England base rate.

How to apply, step by step

1. Calculate the deposit: Gatehouse accepts as little as 5% on houses, while KFH (UK) caps finance at 70% of value.
2. Request a decision in principle from one or two providers, or through a broker experienced in HPPs.
3. Agree a purchase, then submit the full application with income, identity and deposit evidence.
4. Pay for the valuation ordered by the provider and wait for the formal offer.
5. Instruct a solicitor who understands the co-ownership and lease documents, not just a standard mortgage deed.
6. Sign the plan documents; at completion the provider buys its share and the lease starts.
7. Pay monthly rent and acquisition payments, and arrange buildings insurance as the plan requires.

From formal offer to completion usually takes a few months. Gatehouse indicates two to four weeks to an offer and twelve to sixteen weeks from signed offer to completion, so buyers should allow for this when agreeing exchange dates with the seller.

Typical costs and documents

Mistakes that lead to refusal

• Choosing a property type the provider excludes, such as studio flats, short leases or HMOs.
• Being unable to evidence the source of the deposit, especially gifted funds from abroad.
• Assuming the rent is fixed for the whole term when only the initial period is fixed.
• Using a solicitor unfamiliar with HPP documentation, which delays completion.
• Overlooking early settlement charges on fixed-rate plans before planning a sale.

Can a first-time buyer use a home purchase plan?

Yes. First-time buyers can use an HPP and still claim first-time buyer relief from Stamp Duty Land Tax in England and Northern Ireland. The main hurdle is the deposit, since only a few providers offer finance up to 95% of value.

What happens if the property falls in value?

Under a diminishing musharakah structure the provider shares ownership, but most plans still require the customer to buy out the provider’s share at the original amount. Negative equity therefore affects the customer much as it would with a conventional repayment mortgage.

Can the home be repossessed under an HPP?

Yes. Every UK plan carries the warning that the home may be at risk if payments are not kept up. Providers must follow FCA arrears and repossession rules, including fair treatment and forbearance, before seeking possession through the courts.

Is remortgaging from a conventional loan possible?

Several providers refinance existing mortgages into a home purchase plan, including Gatehouse Bank and AlRayan Bank’s Premier service. The provider buys a share of the home from the owner, and alternative finance relief normally prevents a fresh SDLT charge on that transfer.

Where can non-residents find a plan?

Gatehouse Bank considers applicants from more than 190 countries, subject to a country checker. Nomo and AlRayan’s Premier team focus on Gulf residents, and Kuwait Finance House (UK) accepts foreign-currency income for London and Home Counties properties.