(NOTE: The ‘rent only’ feature of this BTLPP does not refer to the tenancy agreement between the customer and the tenants occupying the rental property. Instead it refers to the payment arrangement between the customer and the Bank, which consists of two elements, i.e. acquisition and rent payment. See below for a detailed explanation).
IBB’s BTLPP is a variable rental rate product available to landlords, of any faith, with a deposit of 35% at a rental rate of 5.49%. Other features include:
• The ability to make additional acquisition payments, without penalty, subject to a minimum amount of £4,000
• No early payment charge for clearing the finance in full
• An administration fee of 1% (a minimum fee of £995 applies)
• Minimum property finance of £30, 000, maximum finance of £500, 000 and minimum property value of £90, 000
• The ability to secure an Agreement in Principle (AIP) online at www.islamic-bank.com or apply directly through the Bank’s branches and contact centre. The BTLPP is also available via mortgage intermediaries
Commenting on the launch Imran Pasha, Head of Sales and Service, Islamic Bank of Britain said, “IBB launched its Sharia compliant Buy to Let Purchase Plan in November 2011 and we have seen a healthy demand for the product since then. The recent launch of the rent only BTLPP is the natural next step. There is a growing demand from landlords for Sharia compliant property finance and a rent only product provides them with an affordable way to access it.”
As a Sharia compliant product, IBB’s BTLPP differs from a mortgage where the customer borrows money from a lender which is then repaid with interest. A BTLPP uses the Islamic finance principles of co-ownership (Musharaka) with leasing (Ijara), where IBB and the customer buy the property as partners and the customer pays rent on IBB's share in the property.
The customer’s monthly payment, therefore, consists of an acquisition payment and rental payment. The former increases the customer’s share in the property and the latter is rent paid by the customer for the share that the Bank owns. At the end of the term, when all acquisition payments have been made and the finance has been settled, ownership of the property transfers fully to the customer. However, with a rent only BTLPP the customer’s payments only cover the rent paid to IBB and does not increase the customer’s share in the property. To acquire IBB’s share in the property the customer will need to make a lump sum payment at the end of the finance term.
The source of funds for IBB’s BTLPP is 100% Sharia compliant which means that IBB does not use any interest bearing instruments. Instead it uses its own funds or the savings deposits from its customers, all managed entirely in accordance with ethical and Sharia principles.