Islamic Mortgage UK: How Home Purchase Plans Work in 2026

By Jake Stott, Knox Mortgages. Reviewed by an adviser authorised under Fort Advice Bureau, FCA FRN 972730. Published 25 September 2026. Last reviewed 25 September 2026.

An Islamic mortgage is a Sharia-compliant way to buy a home without paying interest. Instead of lending you money, a bank buys the property with you (or for you) and you pay rent on the part it owns while buying its share over time. In the UK these products are called Home Purchase Plans (HPPs), are regulated by the FCA, and are offered in 2026 mainly by Gatehouse Bank and StrideUp.

This guide covers how the three main structures work, which providers are actually lending today (several names that still appear in search results have stopped), how a rental rate compares with a mortgage rate in pounds and pence, how stamp duty works, and why applications get declined. If you are a first-time buyer, a landlord or coming to the end of an existing plan, each section is written to stand on its own.

How does an Islamic mortgage work?

An Islamic mortgage works by replacing interest with ownership and rent. Islam prohibits riba (interest), so the provider cannot profit by lending money. It profits by owning part of an asset and charging rent for your use of it, which Sharia scholars accept. In a typical UK Home Purchase Plan you put down a deposit, say 10%, and the bank funds the remaining 90%. The property is held jointly. Each month you pay two things: rent on the bank’s share, and an acquisition payment that buys a little more of that share. As your share grows, the bank’s share shrinks, so the rent portion falls and more of each payment goes to buying the home. At the end of the term you own 100% and the bank transfers the title to you. The monthly total is usually fixed for a set period (2 or 5 years is common), then a new rental rate applies, just as a conventional fixed rate ends and you remortgage.

What is the difference between ijara, diminishing musharaka and murabaha?

The three structures differ in who holds the property and how the provider earns its return. Diminishing musharaka is a partnership where you and the bank co-own and you buy the bank out gradually. Ijara is a lease: the bank owns the property, leases it to you, and you pay rent plus capital towards buying it. Murabaha is cost-plus sale: the bank buys the property and sells it to you at a higher agreed price, paid in instalments with no rent. In the UK residential market today, the live products are almost all diminishing musharaka combined with an ijara lease (Gatehouse calls its version “Acquisition and Rent”). Murabaha is rare for homes because the full profit is fixed upfront, which makes it expensive to refinance. HM Land Registry Practice Guide 69 confirms both ijara and diminishing musharaka arrangements give the customer a registrable lease, with the bank or a trustee holding legal title until the final transfer.

Feature	Diminishing musharaka	Ijara	Murabaha
Legal model	Partnership: you and the bank co-own	Lease: bank owns, you rent	Sale: bank buys, sells to you at a mark-up
What you pay monthly	Rent on bank’s share plus acquisition payment	Rent plus capital towards purchase	Fixed instalments of the marked-up price
Does the payment fall over time?	Rent portion falls as your share grows	Depends on product; often fixed	No, fixed at the outset
Rental rate resets?	Yes, after each fixed period	Yes, periodically	No, price agreed at the start
Early repayment	Possible; early payment charges may apply in fixed periods	Possible; charges may apply	Harder; profit already built in
UK residential use in 2026	Main structure (Gatehouse, StrideUp)	Used alongside musharaka as the lease	Rare for homes; used in some commercial finance

Which banks offer Islamic mortgages in the UK in 2026?

In September 2026 the two main providers of Home Purchase Plans for UK homebuyers are Gatehouse Bank and StrideUp. Several names that still rank on Google are no longer taking new residential customers. Al Rayan Bank, for years the largest UK provider, withdrew its retail Home Purchase Plan for new customers and now services existing plans only. HSBC closed its UK Amanah home finance in 2012 and Lloyds withdrew its Islamic products several years ago. Wayhome has retired its Gradual Homeownership product and now offers a different rent-to-buy scheme (“Deposit Bridge”) that does not state a Sharia certification. Bank of London and The Middle East (BLME) offers Sharia-compliant buy-to-let and holiday home finance on an execution-only basis rather than advised owner-occupier plans. The practical result: the market is small, criteria differ sharply between the two active providers, and choosing the wrong one first costs time and a valuation fee.

Provider	Status Sep 2026	Minimum deposit	Finance limits	Where	Buy-to-let
Gatehouse Bank	Lending: purchase, refinance, BTL	From 5% (95% FTV up to £600,000, UK residents, purchase only); 25% on new build flats	£75,000 to £5m; up to 6x income considered; terms to 40 years	England and Wales	Yes, individuals and UK SPVs, HMO and MUFB
StrideUp	Lending: purchase, refinance, BTL	10% standard houses, 15% new build houses, 20% new build flats	£50,000 minimum; £1.5m at 70% FTV; property value from £85,000	England only	Yes, up to 80% FTV to £750,000; ltd companies accepted
Al Rayan Bank	Existing customers only	n/a	n/a	n/a	No new retail
Wayhome	Gradual Homeownership retired	Resale homes from 5%; Deposit Bridge 1% option fee	New build only for Deposit Bridge	Selected areas	No
BLME	Execution-only specialist	Varies	Higher value cases	UK	Yes, plus holiday homes

Sources: Gatehouse Bank and StrideUp published criteria and press releases, checked 25 September 2026. Criteria change often; confirm at application.

Is an Islamic mortgage more expensive than a normal mortgage?

Usually a little, but not always, and the gap is smaller than most people expect. In June 2026 Gatehouse cut its limited edition Home Purchase Plan rental rates for new UK residents to start from 5.53% on a 5-year fixed term and 5.58% on a 2-year fixed term. Its standard HPP rates started from 5.95% (5-year) at 65% finance-to-value and 6.05% at 80%. In September 2026 it launched refinance products from 5.63% (5-year) with no product or application fee and one free valuation. For comparison, Moneyfacts’ average 5-year fixed mortgage rate across all loan-to-values was 5.96% in September 2026, after a month in which most big lenders repriced upwards. The best conventional deals at low loan-to-values will still undercut HPPs, because the providers are smaller, fund themselves differently and carry more legal cost per case. The fair comparison is like for like: same deposit, same term, same fixed period, fees included.

Worked example: rental rate vs mortgage rate on a £250,000 home

Here is the arithmetic on a £250,000 purchase with a 10% deposit over 25 years, comparing a Home Purchase Plan at 5.53% with an illustrative conventional mortgage at 5.20%. Figures are illustrative and ignore fees.

• Deposit: £25,000. Bank’s share (finance): £225,000.
• HPP monthly payment at 5.53% over 300 months: £1,385.73.
• First month split: rent on the bank’s £225,000 share = £225,000 × 5.53% ÷ 12 = £1,036.88. Acquisition payment = £1,385.73 minus £1,036.88 = £348.86.
• After a 5-year fixed period (60 payments), the bank’s share has fallen to about £200,952, so you own about £49,048 of the property, 19.6%.
• Conventional mortgage at 5.20% on £225,000 over 25 years: £1,341.68 a month.
• Difference: £44.05 a month, or £2,643 over 5 years.

The maths of an HPP is the same annuity maths as a repayment mortgage; only the legal description of each payment changes. So the one number to compare is the rate, plus fees. A 0.33% gap on £225,000 costs about £44 a month. For many buyers that is a price worth paying for a structure they are comfortable with; for others it is a reason to put down a larger deposit and reach a cheaper band.

Do you pay stamp duty twice on an Islamic mortgage?

No. Because the bank buys the property and then sells or leases it on to you, a Home Purchase Plan would technically involve two land transactions. Sections 71A to 73 of the Finance Act 2003 (alternative property finance relief) remove the second charge when the statutory conditions are met, so you pay stamp duty once, on the same basis as a buyer using a conventional mortgage. HMRC looks at the person who will occupy and ultimately own the home, not the bank, when deciding whether reliefs or higher rates apply. That means first-time buyer relief can still apply, and the 5% higher-rate surcharge still applies if you already own another property. Worked example in England: a first-time buyer purchasing at £250,000 pays £0, because first-time buyer relief covers purchases up to £300,000 at 0% on the first £300,000 (the relief is lost entirely above £500,000). A home mover at £250,000 pays £2,500 (0% on £125,000 plus 2% on £125,000), not £5,000. Scotland (LBTT) and Wales (LTT) have equivalent alternative finance reliefs. See our first-time buyer stamp duty guide for the bands.

How much deposit do you need for an Islamic mortgage?

The minimum deposit is 5% with Gatehouse on a house bought by UK residents, and 10% with StrideUp on a standard house. New builds need more: 15% (StrideUp) for a new build house and 20% to 25% for a new build flat depending on the provider. The deposit is your initial share of the property, so a bigger deposit does two things at once: it lowers the rental rate band and it reduces the share you are paying rent on. StrideUp accepts a 100% gifted deposit from any number of sources, which suits families who pool money, and Gatehouse has removed additional deposit requirements where a family member sells to you at a discount (a “discounted family purchase”). Buy-to-let plans normally need 20% to 25%. If you are working towards a smaller deposit, our guides to 5% deposit mortgages and how much deposit you need for a house set out the conventional options side by side.

Can you get an Islamic buy-to-let mortgage?

Yes. Both active providers offer Buy-to-Let Purchase Plans. StrideUp finances up to 80% of value on properties up to £750,000 and 70% up to £1m, accepts UK limited companies, first-time landlords and joint applications of up to four, and lends on HMOs up to 12 bedrooms and multi-unit freehold blocks up to 10 units at up to 75%, with up to £2.5m per property and £3m across a portfolio. Gatehouse lends £75,000 to £5m in England and Wales to UK residents, expats, international residents and UK SPVs; in June 2026 its BTL rates at 65% started from 3.74% (2-year) and 5.20% (5-year), and HMO/MUFB landlords now need one year of landlord experience. Rental cover tests still apply, so the rent must cover the plan payment by a set margin. Remember the Renters’ Rights Act has been in force in England since 1 May 2026: section 21 is gone and tenancies are periodic. See our buy-to-let mortgage guide for how stress tests work.

Can you remortgage onto or off an Islamic mortgage?

Yes, in both directions. When your fixed period ends you can switch to a new product with the same provider, or refinance to another HPP provider or a conventional lender, subject to early payment charges during any fixed term. Gatehouse’s September 2026 refinance range is aimed at exactly this: up to 80% FTV, up to £5m, no product or application fee and a free standard valuation, for UK residents moving from a conventional mortgage or another Sharia-compliant plan. StrideUp accepts refinance once six months have passed since the last purchase or remortgage, but its plans are not portable, so moving home means redeeming and starting again. Existing Al Rayan customers can still take new products with Al Rayan, but it is worth comparing the terms against a refinance elsewhere before switching. Moving from a conventional mortgage to an HPP is a full refinance with new legal work, so allow 6 to 10 weeks. Our remortgage guide covers timing.

What are the legal and valuation cost differences?

Expect higher legal costs and a more limited choice of solicitor. Because the bank takes legal title (or a trustee does) and grants you a lease, the conveyancing involves a transfer, a lease and often a separate agreement to sell, not just a mortgage charge. HM Land Registry registers these as distinct documents. Most HPP providers use a panel of solicitors who understand the structure, and you will usually pay the bank’s legal costs as well as your own, unless a product includes free legals. Budget roughly £500 to £1,500 more than a conventional purchase, depending on price and tenure. Valuations are similar to mainstream lenders and sometimes free on refinance products. Lease terms matter: StrideUp requires at least 85 years unexpired on a leasehold. The other cost to budget is time: an HPP purchase can take a few weeks longer than a conventional mortgage, so agree realistic dates with the seller.

Who checks that a Home Purchase Plan is Sharia compliant?

Every UK provider appoints an independent Sharia supervisory board or advisory firm that reviews and certifies its products. StrideUp’s plans are certified by Amanah Advisors, and Gatehouse Bank has its own Sharia Supervisory Board of recognised scholars. The board signs off the contract structure, the way rent is set, how late payments are handled (late charges are typically given to charity rather than kept as profit), and the investment of the bank’s funds. The FCA regulates the product as a Home Purchase Plan, so you get the same conduct protections as with a mortgage, including access to the Financial Ombudsman Service. What the FCA does not do is rule on religious compliance. If you follow a particular scholar or school, ask the provider for its fatwa or certificate and read it before applying. Reasonable scholars differ, for example on benchmarking rental rates against market interest rates, and that is a personal decision.

Why do Islamic mortgage applications get declined, and what is the fix?

Most declines come from criteria, not credit. With only two main providers, a case that falls outside one set of rules often has nowhere else to go, so the fix is picking the right provider first.

Decline reason	Why it happens	The fix
Property in Scotland or Northern Ireland	StrideUp is England only; Gatehouse BTL is England and Wales	Check location first; Wales cases go to Gatehouse
Finance too small	Minimums of £50,000 (StrideUp) and £75,000 (Gatehouse)	Low-value homes may not fit; consider a conventional lender or a larger purchase
New build flat with 10% deposit	New build flats need 20% to 25%	Increase the deposit or target a resale property
Recent missed payments or CCJs	StrideUp: 0 defaults and 0 CCJs in 36 months	Wait until events age out; rebuild with a clean 12 months
Short job history	StrideUp wants 3 months’ employment; contractors 12 months in the industry	Time the application after probation
Short lease	Under 85 years unexpired (StrideUp)	Negotiate a lease extension before completion
Wanting to port on moving	StrideUp plans are not portable	Plan for redemption costs if you may move within the fix

Illustrative case: first-time buyers in Manchester

This is an illustrative scenario based on the type of case we see, not a specific client. A couple in their late 20s, both employed, want a £240,000 terraced house in Levenshulme and will only use a Sharia-compliant product. They have £12,000 saved and a £12,000 gift from family, so a £24,000 (10%) deposit. The house is a resale, so a 10% deposit fits both active providers. The deciding factors are the rental rate at 90% FTV, whether the gift from several relatives is accepted (StrideUp accepts gifts from any number of sources), and legal cost. Because first-time buyer relief applies through the alternative finance rules, stamp duty is £0. The lesson: with a 5% deposit the choice narrows to one provider, and at 10% there is a real comparison to make.

Islamic mortgages in Manchester

Greater Manchester has one of the largest Muslim communities in the UK, with established communities in Cheetham Hill, Longsight, Levenshulme, Rusholme, Whalley Range and across Oldham, Bolton and Rochdale. Demand for Sharia-compliant home finance here is steady, but the supply is national: there is no Manchester-based HPP provider, and both active providers lend in Greater Manchester. That makes the local factors mostly about property. Victorian terraces, which dominate much of south Manchester, are standard construction and fit both providers’ criteria. City centre new build flats need a 20% to 25% deposit on an HPP, which rules many first-time buyers out. Knox is based in Manchester and works nationally. For conventional options alongside an HPP, see our Manchester mortgage broker page and first-time buyer mortgages in Manchester.

Islamic mortgage FAQs

Is an Islamic mortgage halal?

Yes, when it is certified by a recognised Sharia board. UK Home Purchase Plans replace interest with co-ownership and rent, which most scholars accept. Scholars differ on details such as benchmarking rent against interest rates, so read the provider’s certificate if this matters to you.

Are Islamic mortgages regulated by the FCA?

Yes. Home Purchase Plans have been FCA regulated since 2007. You get the same conduct protections as a mortgage, including complaints to the Financial Ombudsman Service. The FCA regulates the product, not its religious compliance.

Which UK banks offer Islamic mortgages?

In September 2026 the main providers for homebuyers are Gatehouse Bank and StrideUp. Al Rayan Bank only services existing customers, HSBC and Lloyds have withdrawn, and Wayhome has retired its Gradual Homeownership product.

Can I get an Islamic mortgage with a 5% deposit?

Yes, with Gatehouse Bank on a house for UK residents buying up to £600,000, at up to 95% finance-to-value. StrideUp needs at least 10% on a standard house. New build flats need 20% to 25% with either provider.

Do Muslims get cheaper mortgages?

No. Home Purchase Plans are open to anyone, whatever their faith, and are priced on risk like any other product. In 2026 HPP rental rates usually sit slightly above the best conventional deals at the same finance-to-value.

Do I pay double stamp duty on a Home Purchase Plan?

No. Alternative property finance relief under the Finance Act 2003 means stamp duty is charged once, and first-time buyer relief or the higher-rate surcharge is assessed on you as the occupier, not the bank.

What happens if I miss a payment on an Islamic mortgage?

The provider will contact you and agree a plan, as a mortgage lender would, and FCA arrears rules apply. Late payment charges are usually limited to costs, with any excess given to charity. Persistent arrears can lead to repossession.

Can I overpay or pay off an Islamic mortgage early?

Yes. You can buy more of the bank’s share early, but early payment charges may apply during a fixed period, and some providers set a minimum overpayment. Al Rayan, for example, sets a £4,000 minimum for existing customers.

Talk it through before you apply

With two main providers, different deposit rules and a legal process that takes longer than a standard mortgage, the order you do things in matters. Book a discovery call and we will check your deposit, income and property against current Home Purchase Plan criteria, and compare them honestly against conventional options so you can decide.

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Knox Mortgages is a trading style of Fort Advice Bureau which is regulated and authorised by the FCA to conduct Mortgage and Protection business, FRN: 972730