‘Your Home’ scheme to purchase house

Fatwa ID: 02165

Answered by Molana Eunus Ali

Question:

As'salamu-'Alaykum,

My question relates to home purchasing and in particular, a relatively new home purchasing scheme offered by Heylo Housing which works on the basis of shared ownership. It would be most appreciated if you could evaluate the scheme details (below) in conjunction with other information available on the links provided and the template lease agreement attached and conclude on whether it would be permissible to purchase a property under the scheme.

Scheme summary: The scheme is called Your Home and it is an affordable home ownership scheme offered by Heylo Housing. The scheme involves purchasing at least a 10% share in a property and renting the remainder with the option to purchase more shares over time. The scheme therefore eliminates the need of taking out a mortgage.

How does the initial purchase work?:

– Applicant applies to demonstrate eligibility to scheme. Key eligibility conditions are  household income below £90,000 and having cash savings for minimum 10% purchase.
– Once the applicant is accepted they are given a budget for the maximum price of the property they can buy.
– The applicant is then free to find and negotiate a property on the market for resale as if a cash buyer.
– Once a property is found and the applicant's offer is accepted by the seller Heylo are notified by the applicant. Heylo require the applicant to pay for and procure a property valuation report.
– If the valuation report is in line with the price agreed with the seller, solicitors are appointed by the parties to complete the sale.
– Heylo will charge £1,200 product fee plus survey costs of around £450 before the purchase.
– Heylo buys the property from the seller in cash and on the day of completion ,Heylo issues a shared ownership lease for a term of 999 years to the applicant which allocates the paid up share of the house to the applicant and rents out the remaining share to the applicant. For illustration if a property worth £300,000 is bought and the applicant opts to buy 10%, the applicant would pay £30,000 and pay rent on the remaining 90%.
– Stamp duty will be payable on the purchase based on governments stamp duty rules for shared ownership properties.
– Rent is set at 4.89% per annum of the un-bought share. So in this example it would be £1100.25 per month (270,000 x 4.89% divide by 12). Rent will be reviewed annually on this un-bought share and will increase by RPI plus 0.75%. If RPI is zero or negative rent will increase by 0.75%.
– Rent will be collected by direct debit by Heylo on a monthly basis along with building insurance and a monthly share of the annual management charge of £181.44 (which will increase by RPI annually).
– The shared ownership lease gives the right to pass over ownership to heirs. Maintenance and repairs is also the responsibility of the occupant.
– The lease also sets the mechanism for the occupant to sell their share and mechanism to increase their share in the property. The occupant has the right to sell or buy further share as long as the outlined mechanisms are abide by. Any sale or further purchase is done at market value at the time of transaction and not at the initial purchase price of the property.

If the occupant wants to sell their share, how would this work?:

– Just like any sale of property the occupant can advertise the property for sale.
– When a price for sale is negotiated and agreed, a valuation report will be procured by the occupant. If the report is in line, the sale will proceed.
– If the illustrative property above is sold for £400,000, the occupant would get the value of its 10%: £40,000. In addition 75% of any capital gains on the un-owned portion at the point of purchase of the property will also go to the occupant, in this case: £67,500. ((360,000 – 270,000) x 75%).Giving a receipt of £107,500 to the occupant and £292,500 to Heylo.

– If the occupant increases their share into the property, at sale they would still get 75% of capital gains or losses on any share that was un-owned at the point of the initial purchase of the property.
– If there is a loss the sales price is shared in the same way.
– In addition there might be an administration fee payable to Heylo.

If the occupant wants to increase their share, how would this work?:

– The occupant will notify Heylo how much more share they want to acquire.
– An independent valuation will be procured by the occupant. Based on the report, the market value for the purchase of further shares will be set.
– If in the example above, if the occupant wants to increase their share to 20% by buying a further 10% and the market value is set at £400,000.
– The occupant would pay £30,000 (based on initial purchase price) for this 10% share + 25% gain on the unowned share * 10% share increase* 100,000 (gain).
– The rent would decrease by the percentage bought: 10%.
– Costs such as buyers solicitor costs, stamp duty etc are payable by the buyer/occupant. In addition there might be an administration fee payable to Heylo.
– Stamp duty will be payable on the purchase based on governments stamp duty rules for shared ownership properties.

The website for the scheme: http://www.yourhome.org.uk/.
The website for gov. stamp duty rules on shared ownership: 
https://www.gov.uk/guidance/sdlt-shared-ownership-property

Please feel free to contact me if you have any further questions.

Regards,

Munib Ahmed

Answer:

Bismillah

After reviewing the information provided by yourselfandtheinformationavailable on the ‘Your Home’ website the conclusion I have reached is that this scheme to purchase a house is not permissible due to the following reason:

It is necessary to specify the amount of the rent at the time of agreement of the contract of the wholeperiod of the lease.

It is also permissible to stipulate in the contract that the amount of the rent will be different at different times during the lease period provided that the amount of rent is specified and the time of change of the amount is agreed upon at the time of affecting the lease.

Likewise if it is agreed upon bu both parties that there will be some changes in the amount of the rent during some periods of the lease, however no time had been specified or the amount (whether it is increased or decreased) is not specified, the lease will not be valid.[1]

Example (1): Abdullah leases his house to Bakr for a total period of 5 years. The rent for the first year is fixed as £500- per month and it is agreed that the rent of every subsequent year shall be 10% more than the previous one. The lease is valid.

Example (2): Abdullah puts a condition in the agreement that the rent of £500- per month is fixed for thefirst year only. The rent for the subsequent years shall be fixed each year at the option of the lessor or some other unclear factor. The lease is void, because the rent is uncertain and there is ambiguity.

In the scheme it is stated that every year of the lease the rate of the rent will increase according to inflation and the Retail Price Index (RPI) rate along with the 0.75%.

As the increased amount of the rent cannot be specified at the time of affecting the lease, the rent is uncertain and ambiguous for the later years of the lease and therefore it will be invalid.

Finally, Abu Hurayrah (Allah be pleased with him) has reported that Allah's Messenger () forbade a transaction determined by throwing stones, and the type which involves some uncertainty. [2]

Only Allah knows best

Written by Molana Eunus Ali

DarulIfta Birmingham.

Checked and approved by Mufti Mohammed Tosir Miah


[1] An introduction to Islamic Finance by Mufti TaqiUsmani, Page 112 & 113

 

 

  1. Saheeh Muslim: 3614

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