Al Rayan Bank launches new 'low deposit' home finance products

03 April 2018

-5% deposit Home Purchase Plans (HPPs) are available to first-time and existing homebuyers in the UK
-Products follow the closure of Government Help to Buy: HPP guarantee scheme in 2016

Al Rayan Bank, one of the fastest growing banks in the UK, is helping more homebuyers to get onto the property ladder with the launch of two new Home Purchase Plan (HPP) products.

The new ‘low deposit’ HPPs will assist with up to 95% of the financing required for residential properties and are designed to replace the Help to Buy: HPP guarantee backed product which was withdrawn end of December 2016. The maximum finance amount is £400,000.

Al Rayan Bank is the first and only Islamic bank in the UK to offer support to buyers who can afford the payments on home finance but may have only a small deposit saved.

Rental rates for 90% finance to value (FTV) are fixed at 4.49%, and 4.99% for 95% FTV until 30th September 2021^. 

Keith Leach, Chief Commercial Officer at Al Rayan Bank, says:
“Following the closure of the Government’s Help to Buy scheme in 2016, we’ve launched a Home Purchase Plan which requires just 5% deposit to help first-time and existing homebuyers get into the property market with a smaller deposit.

The average size of the deposit required for home movers has increased over 90% over the last decade*, making it increasingly difficult for first time buyers. These new products offer consumers an affordable and ethical way of breaking into, or moving up, the property ladder.”

Unlike a conventional mortgage, Al Rayan Bank’s Home Purchase Plans use the Islamic principles of Diminishing Musharaka (co-ownership) and Ijara (leasing)**, which means that the customer and the bank buy the property together. The customer’s monthly payment is made up of two elements, an acquisition payment, which is the payment you make to acquire Al Rayan Bank’s share in the property; and a rental payment which is the charge for renting Al Rayan Bank’s share in the property. At the end of the term when all finance has been settled, the customer owns the house outright, without ever paying interest.

In addition to the new HPP products, Al Rayan Bank offers other alternative home finance products, including 60%, 70% and 80% finance to value plans.

As an independent UK bank, Al Rayan Bank is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority and the PRA. The Bank is a member of the UK Financial Services Compensation Scheme.

The product is available throughout the UK, except Northern Ireland, and all transactions for finance amount greater than 80% include an admin fee of £999.

^Rental rate fixed until 30 September 2021. From 1 October 2021 reverts to Al Rayan Bank Variable Rental Rate which for HPP = 4.49% (Bank of England Base Rate + 3.99% margin).
*https://www.telegraph.co.uk/property/buy/number-first-time-buyers-reaches-10-year-high-despite-average
**Home Purchase Plan customers in Scotland pay an “occupancy payment” under a “co-beneficiaries agreement”

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