Islamic home finance
Islamic home finance lets you buy a home without paying interest. It works differently from a conventional loan, and the differences matter when you compare providers.
The principles
Islamic finance follows the principles of Sharia, which prohibit interest (riba), gambling (maysir) and uncertainty (gharar). Rather than lending money and charging interest, the provider takes part in buying the property. It earns its return through rent or an agreed sale price.
Common structures
- Ijarah (lease that ends in ownership). The provider holds an interest in the property and you pay rent to use it. Ownership passes to you at the end of the arrangement.
- Murabaha (sale at an agreed price). The provider buys the property and sells it to you at an agreed price, paid over time.
Providers describe these as contracts of exchange rather than partnerships, and the details differ from one provider to the next, so read the contract carefully.
Stamp duty
Because the property can change hands more than once, there is a risk of paying duty twice. Stamp duty is set by each state and territory, and the treatment of alternate finance arrangements can differ between them. For example, since 1 July 2024 the ACT has exempted some transactions that are part of an alternate finance arrangement for buying land. See the ACT Revenue Office page. Check with the revenue office in the state or territory where you are buying, or ask your conveyancer, how it applies to you.
Where Zafar can help
We can arrange Sharia-compliant home finance through lenders on Mortgage Australia Group's panel. Zafar can explain how it compares with a conventional loan, talk you through the structures those lenders use, and help you work through the application.
Each lender is responsible for its own products and their Sharia compliance. Véurr does not certify any product as Sharia-compliant, and the lender makes the final decision on your application.
Worth weighing up
- Ask each provider who certifies its product as Sharia-compliant, and ask to see the certification.
- There are fewer providers than for conventional loans, so compare the total cost, fees and terms carefully.
- Ask whether your payments can change during the arrangement, and how.
- Check any provider on ASIC's Professional Registers before you sign.
Common questions
Is Islamic home finance the same as a loan with no interest?
No interest is charged, but it still has a real cost: the provider earns a return through rent or an agreed sale price. Compare the total cost, fees and terms.
Do I pay stamp duty twice on Islamic home finance?
It depends on the state or territory where you are buying, because each sets its own stamp duty rules. For example, since 1 July 2024 the ACT has exempted certain transactions that are part of an alternate finance arrangement for buying land. Check with your state or territory revenue office, or ask your conveyancer, how it applies to your purchase.
Talk to Zafar
Call Zafar, request a call back or send a message. Zafar works with clients across Australia by phone and video, and meets clients in person in Melbourne.