Al Rayan Bank reduces rental rates on buy to let product range by 1%

28 January 2016

Al Rayan Bank today announced a promotional* reduction of 1.00% on its Buy to Let Purchase Plan (BTLPP) and Buy to Let Rent Only Purchase Plan (BRO) products’ rental** rates. The reduction means that landlords will benefit from the lowest BTLPP and BRO rental rates in the Bank’s history.

Buy to Let Purchase Plan (BTLPP)

  • 35% contribution (65% finance to value): discounted variable rental rate of 3.49%; fixed rental rate of 3.69%^ until 31 December 2017
  • 25% contribution (75% finance to value): discounted variable rental rate of 3.89%; fixed rental rate of 3.99%^ until 31 December 2017

Buy to Let Rent Only Purchase Plan (BRO)

  • 35% contribution (65% finance to value): discounted variable rental rate of 3.49%; fixed rental rate of 3.69%^ until 31 December 2017

Other product features include:

  • No early settlement penalty for clearing the finance in full early, even during a fixed rental rate period (a small administration fee will apply)
  • A product fee of 1% (a minimum fee of £995 applies)
  • Minimum property finance of £30,000, maximum finance of £500,000 
  • Minimum property value of £90,000

Unlike conventional mortgages, where the purchaser borrows money from a lender and pays it back with interest, Al Rayan Bank, as a Sharia compliant bank, uses the Islamic finance principles of co-ownership (musharaka) and leasing (ijara) on its property finance products. Al Rayan Bank’s BTLPP customers acquire the property jointly with the Bank, their monthly payments then increase their share of the property, whilst at the same time they pay a rental charge on the portion of the property that they do not yet own. At the end of the finance term, the customer owns the property outright. (N.B BRO customers do not make acquisition payments and therefore do not own the property outright at the end of the term. To acquire the Bank’s share, they will need to make an additional lump sum payment at the end of the finance term.)

As an Islamic bank Al Rayan Bank does not use any interest-bearing products to finance customers’ properties. Instead it uses the savings deposits from its customers, managed in accordance with ethical, Sharia principles.

Intermediaries can find out more by accessing Al Rayan Bank’s dedicated intermediary support service, which can be contacted on 0800 694 7238. Upon registration, Intermediaries will be able to introduce business to Al Rayan Bank by referral, i.e. the provision of customer contact details.

As an independent UK bank, Al Rayan Bank is authorised by the Prudential Regulation Authority, regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Find out more about the Buy To Let Purchase Plan

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* Al Rayan Bank reserves the right to withdraw the promotional rental rate at any time.

* The terms ‘rental rate’, ‘rent only’ and ‘acquisition and rent’ for Al Rayan Bank’s BTLPP range do not refer to the rental agreement between the customer and the tenants occupying the property. Instead they refer to the payment arrangement between the customer and the Bank, which usually consists of two elements, i.e. an acquisition and a rent payment. See the explanation entitled ‘How does a BTLPP work?’ in the notes below for more details.

*At the end of the fixed period (31 December 2017), rental rates will revert to the Al Rayan Bank Variable Rental Rate, which for Buy to Let is 5.49% (Bank of England Base Rate (BBR) + 4.99%). This is the Bank’s revert rental rate. The Al Rayan Bank Variable Rental Rate is subject to quarterly rental reviews when the Bank will consider changes to its rental rate as well as changes to the Bank’s margin (currently 4.99%), though margin increases are capped at 2.00% above the margin that applied at the outset.

How does a BTLPP work?

The principle difference between a BTLPP and a conventional buy to let mortgage is that the lending/borrowing relationship does not exist. Instead, BTLPPs are based on co-ownership and lease agreements arranged using two separate principles of Islamic finance. For this reason interest does not form part of the arrangement and each monthly payment consists of the following two elements:

  • Rental element – this is the amount that the customer pays to the Bank as rent on the Bank’s share of the property. This is in accordance with a lease (Ijara) agreement.
  • Acquisition element - this is the amount that the customer pays to purchase a part of the Bank’s share in the property. This is in accordance with a co-ownership (Diminishing Musharaka) agreement. With every payment, the customer’s equity in the property increases and the rental element decreases, reducing the Bank’s share in the property on a diminishing basis. However, with a rent only BTLPP, the customer’s payments only cover the rent paid to Al Rayan Bank and does not increase the customer’s share in the property. To acquire the Bank’s share in the property, the customer will need to make a lump sum payment at the end of the finance term.

The customer can buy the Bank’s share or sell the property at any time without incurring any penalty charge, subject to clearing the finance amount in full. The Bank does not claim any share in any appreciation of the property.

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