Fatwa ID: 04704
Answered by: Shaykh Umer Khan
We understand that mortgages are not permissible in Islam. However, recently, there is a new company called Wayhome (link provided below). Their business model is that you pay e.g. 5% of the deposit and then they will buy the remaining 95% of the house. You then pay rent on the remaining 95%. Rents are adjusted based on market prices.
As time goes, you can buy a greater share of the house until you own 100% and rent will go down accordingly.
All other costs e.g. survey, solicitor, etc are split between you and the company in accordance with how much you own.
The only thing I think is non-Islamic is that you need to pay for 100% of the Buildings Insurance. However, I asked them if there is a workaround on this and they replied they can buy the insurance under their name and we can reimburse them.
Website details below:
Can you please go through their website and let me know if this is Shariah Compliant way of purchasing homes or not?
Another option is that for buildings insurance we approach a company like Insure Takaful (https://www.insurehalal.com/home-insurance) which is Shariah-compliant?
In the name of Allah, the Most Gracious, the Most Merciful
After looking at their web site, it appears that Wayhome utilizes what is known in Islamic Finance as mushārakah munāqaṣah, or a declining co-ownership contract. Wayhome establishes a full equity-based partnership with its customer (using a Limited Liability Partnership), where each party owns a portion of the house. The customer pays market rent only on the portion owned by Wayhome. In addition to paying rent, the customer continues to buy more of Wayhome’s portion of the home over time at the market price, which of course also decreases the ongoing rent. There is no mortgaging or lending involved.
Musharakah (“An Introduction to Islamic Finance”, Mufti Taqi Usmani, p.18), or co-ownership, is not only permissible, but it is also considered one of the best means to “finance” home and is generally preferred over other home-financing contracts such those based on murābaḥah or ijārah. Wayhome’s principles also comply with many other Islamic Finance guidelines. Costs such as the survey, solicitor, etc are split between the customer and the company in accordance with the percentage ownership. They also do not charge late fees or interest when rent is late. Furthermore, if the customer is unable to pay rent for a longer period of time, they will arrange to sell the home, and return the customer’s portion of the home equity after subtracting any overdue rent.
At a fundamental level, Wayhome’s scheme is Islamically permissible. We did not find any issues with their model, with the exception of the following caveats:
- Without studying the actual contract language, we can comment if all of the elements of the contract comply with Islamic principles.
- As you pointed out, 100% of the insurance is paid only by the customer. However, it should be noted that muftīs and scholars specializing in Islamic Finance have permitted this for other organizations (for example Muftī Taqi Usmani, Shaykh Nizam Yaqubi, and Shaykh Yusuf Talal DeLorenzo serve on the board of Guidance Financial, which also requires that 100% of the insurance is paid by the customer) so this should inshā’Allāh be okay. See https://www.guidanceresidential.com/docs/Guidance-White-Paper.pdf, and in particular, question 10 under “common questions”.
- The FAQs for Wayhome state that “You can top-up all the way to 40% ownership. As soon as you own more than 40% of your home, the government applies a tax called ATED (Annual Tax on Enveloped Dwellings). Wayhome is the gradual, flexible way to start your homeownership journey. But, we expect most people to finish this journey by buying us out—perhaps with a mortgage or an inheritance.” This may leave a customer stuck with no good and ḥalāl way to increase their ownership beyond 40%.
Only Allah knows best
Written by Shaykh Umer Khan
Checked and approved by Mufti Mohammed Tosir Miah
Darul Ifta Birmingham