What is the ruling of the Help to Buy equity loan?

Helping-to-buy-a-house

Question:

What is the ruling of the Help to Buy equity loan?

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Help to Buy is a new government-backed initiative in the UK set up to help first time buyers and those looking to move up the property ladder, to purchase a property with as little as a 5% deposit.

With a deposit of 5%, the Help to Buy Equity Loan scheme allows one to borrow an additional 20% of the purchase price of the property from the government.

The borrower will not be charged ‘loan fees’ for the first 5 years of owning your home.

In the 6th year, the borrower is charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year. The increase is worked out by using the Retail Prices Index plus 1%.

These loan fees are clear interest.  Any conditional increase on a loan is interest and impermissible.

Therefore, it is not permissible to enter into the Help to Buy Equity Loan Scheme.

And Allah Ta’ālā Knows Best

Mufti Faraz Adam al-Mahmudi,
www.darulfiqh.com

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