There was a lot of news yesterday about a new house finance product being offered by Adelaide Bank, touted in some media outlets as the ‘interest free mortgage’ and the like. The Herald Sun summarises it as follows:
The loan product allows home owners to borrow as little as 75 per cent of the value of their home, after putting up a 5 per cent deposit.
The other 20 per cent will be covered by what is called an equity finance mortgage or EFM.
The borrower pays no interest or principal repayments on this 25-year mortgage, but when they sell the house, the bank gets 40 per cent of the total capital gains. On the upside, if the house declines in value, the bank absorbs up to a maximum of 20 per cent of the losses.
The loan effectively allows people to buy a house up to 25 per cent more expensive than is possible under a traditional home loan.
Let’s leave aside the open issue of where the borrower decides to source the initial 75 per cent. With the unequal contribution of capital and responsibilities, this seems to resemble a sharikat al-’inan contract. However, whereas the distribution of profits according to an agreed ratio (60%/40%) may be allowed, the allocation of losses based on a ratio (80%/20%) other than the contribution of capital may be problematic.
This does, of course, require further investigation by those suitably qualified in the field. The news reports are fairly light on the details of the scheme.
It’s unlikely that Adelaide Bank created this product with Muslim customers in mind but shared equity schemes of this type may have the potential to offer Muslims a permissible mode of finance that satisfies the risk management and other requirements of the banks. Regardless of the efficacy or appropriateness of this particular scheme, it is encouraging that banks are willing to look beyond the more traditional lending products and may be open to innovation.
As an aside, it would be nice if the religious figures in this country who have spent the last few decades declaring things to be haram, might reallocate some of the time they dedicate to discovering prohibitions to working out how some of these things might be improved within the context of Australian law. For example, it’s all well and good to explain why you think insurance is riba, gambling or, as some say, an oppressive act committed by the insured against the insurer, but why don’t people come up with workable alternatives?