Al Rayan Bank Home Purchase Plan

An Al Rayan Bank Home Purchase Plan is a Sharia-compliant way to buy or refinance a home without paying interest. The bank buys the property in partnership with you, each of you owning a share. You then buy the bank's stake over time, paying rent on the portion you do not yet own, and at the end of the agreement you own the property outright¹.

It is used in the same situations as a mortgage, but it is not one. Al Rayan Bank says its Home Purchase Plans operate completely without interest, or riba, and that this is the fundamental difference². The plan is built on the Islamic finance principles of Diminishing Musharaka, a diminishing partnership, and Ijara, leasing¹.

Al Rayan Bank has offered these plans since it was founded in 2004, and describes itself as offering the UK's widest range of Sharia-compliant home finance products³. The bank's own site carries today's rental rates, fees and monthly payment figures; this page explains how the plan is structured, what drives the cost and what protects you.

What it is and who it is for

A home purchase plan is a Sharia-compliant mortgage alternative used to buy or refinance a home. The property is bought jointly with the bank, your deposit is your stake, the bank holds the remaining stake, and the property is registered in the bank's name. The bank instructs a solicitor who works alongside your own⁸.

The regulator's definition is wider than Islamic finance alone. Under the Perimeter Guidance handbook, a home purchase plan is an arrangement where a person buys land and rents it to a home purchaser, or sells it to them in stages, and the definition is primarily directed at arrangements designed to comply with Islamic principles, though nothing in it limits it to those arrangements⁹.

The definition also sets the boundaries. An arrangement is not a home purchase plan if the home purchaser is not an individual or trustees, if the land is let as a dwelling to someone other than a related person, if the land is used primarily for business purposes, or if the land is overseas⁹. That last point matters: the plan is for UK property.

Al Rayan Bank's own guidance describes the eligible group for its Buy to Let Purchase Plan and its calculator as UK residents³. Its terms state that the Home Purchase Plan products follow the Sharia rules and requirements for Diminishing Musharaka and Ijara¹⁰.

If you are weighing this against a conventional loan, our guide to home purchase plans sets out how the Islamic route compares with a standard mortgage, and how a mortgage works explains the interest-based model.

How it works

The mechanics are the same across the bank's home finance products. Al Rayan Bank purchases the property in partnership with its customers, with each party owning a share. The customer then buys the bank's stake in the property over time, paying rent on the portion they do not yet own¹. At the end of the agreement, the customer owns the property outright, without ever paying interest¹.

As you buy more of the bank's share, your ownership increases and your rental contributions therefore decrease⁹. Your monthly payment is made up of two parts: a rental payment and an acquisition payment, the second of which buys down the bank's share³.

The bank uses conventional indices such as the Bank of England Base Rate to price its products, because these are widely understood and allow a fair and consistent rate across the country. It says local rental rates are not used because they would create too much variation¹¹. The bank states that the benchmark does not affect these principles or the way a Home Purchase Plan works, and that its use does not introduce interest into the arrangement¹.

On variable rental rate plans, rent reviews take place every quarter in March, June, September and December⁴. After a deal completes or a new rental rate is applied, the bank reviews the rental rate quarterly in those same months and adjusts monthly payments accordingly¹¹.

How the fees and charges work

The bank's site carries today's figures for its plans, including the tariff list and the Home Purchase Plan Premier tariff brochure¹². What follows is how the charges are structured, not what they currently are.

The terms set out the order in which your payments are applied. Sums received go first to any unpaid charges under the Tariff List, then to sums due under the deed and the Legal Charge, then to rent, then to acquisition payments, and finally to reducing the finance balance, the final acquisition payment or other final acquisition costs¹⁰. In practice this means an unpaid administration charge is cleared before your money reduces what you owe.

The bank may vary the charges or add new charges to the Tariff List to reflect reasonable changes in the cost of administration or services¹⁰. The final acquisition costs are defined as the finance balance together with any extra cost the bank incurs under the Service Agency Agreement that is not recovered through the supplemental rent¹⁰.

You can make additional acquisition payments in line with the terms of your Offer Letter, and each one increases your share of the property¹⁰. Because rent is charged on the portion you do not yet own, buying more of the bank's share reduces the amount the rent is worked out on¹. If you are considering overpaying, our guide to overpaying your mortgage covers how lenders treat extra payments and what to check first.

If you settle early, charges can apply. The bank publishes an early settlement premium FAQ page, and its terms allow the bank to recover costs through the tariff¹⁴. On the bank's Buy to Let Purchase Plan, the customer may not place the property on the market for sale to the public without the bank's prior written consent unless an estate agent is instructed, and that restriction does not apply to sales to family members or friends¹⁰.

Who can apply and how to apply

The bank's guidance describes UK residents as the eligible group for its Buy to Let Purchase Plan and its calculator³. The terms state that the products follow the Sharia rules and requirements for Diminishing Musharaka and Ijara¹⁰.

There are practical conditions attached to the property and the process:

• The property must be in the UK. Land overseas, or land used primarily for business purposes, falls outside the definition of a home purchase plan⁹.
• A valuation is required. The valuation report on the property you wish to finance is valid for six months from the date of the valuation, and if your case has not completed after that, the bank requires a new valuation at your expense¹⁵.
• There is a completion deadline. The bank's guidance tells customers their case will need to complete within the next three months, otherwise a new valuation is required¹⁵.
• If your offer expires, you cannot complete on it. You would need to contact the bank's Sales Support team, who can send a new offer to sign and return, subject to a re-assessment by the Underwriting team and possibly further information from you¹⁶.
• Stamp duty land tax is handled differently. For Home Purchase Plans and Buy to Let Purchase Plans, HMRC recognises only the bank as the lead purchaser at HM Land Registry⁸. Stamp duty land tax applies in England and Northern Ireland; Scotland has Land and Buildings Transaction Tax and Wales has Land Transaction Tax¹⁷.

The bank's own guidance on moving home and its home finance help pages set out the documents you will need and the steps in order¹⁷. If you are buying for the first time, our guide to first-time buyer mortgages explains what is different about that process, and how to apply for a mortgage covers the paperwork a lender will ask for.

How your money is protected

Al Rayan Bank is authorised by the Financial Conduct Authority, reference 229148, with an authorisation effective date of 6 August 2004⁶. It appears on the Bank of England's list of UK banks authorised to accept deposits, dated 1 September 2026¹⁸. The company behind it is active and was incorporated on 11 July 2002¹⁹.

Eligible deposits held with Al Rayan Bank are protected up to a total of £120,000 by the Financial Services Compensation Scheme⁵. That protection covers deposits, not the property. During the plan the property is registered in the bank's name⁸, so the deposit protection limit is not the same thing as security over your home.

The plan is secured on your home. As with any secured borrowing, your home could be repossessed if you are unable to keep up with repayments⁷. The terms require you to insure the property on a full reinstatement basis, including site clearance, professional fees and VAT, against fire, explosion, subsidence, earthquake, riot and civil commotion, terrorism, malicious damage, impact, flood, storm, aircraft, water damage and other normal buildings risks, plus third party and public liability cover¹⁰.

The terms also contain a Sharia compliance clause. Both parties confirm they are satisfied that the deed, the Offer Letter and each other HPP Agreement do not contravene Sharia, and neither will raise objections on matters of Sharia compliance¹⁰. Separately, both parties irrevocably waive and reject any entitlement to recover interest from each other, because the payment of interest is not permitted under Sharia¹⁰.

If you are comparing this with other ways of borrowing against a home, our pages on second charge mortgages and equity release explain how those products work and where their protections stop.

Problems, complaints and getting help

If you think you will have difficulty making payments, tell the bank immediately. Its guidance for customers going through separation says to keep up monthly payments while you decide how to go forward, and to let the bank know straight away if you think you will have difficulty making payments²⁰. The bank has said it will work with customers on an individual basis to assess what help is available and help them manage their finances²¹.

There is a formal process a lender must follow before going to court over arrears. The Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears requires the lender and borrower to act fairly and reasonably, encourages pre-action contact, and encourages lenders to check who is in occupation before issuing proceedings²². Our guide to what a lender must do before going to court sets out those steps, and mortgage arrears: what to do if you cannot pay covers the options.

Free, impartial help is available. Business Debtline publishes guidance on help with mortgage payments²³, and National Debtline and StepChange both explain the Debt Arrangement Scheme, under which fees are included in your plan and paid for by your creditors²⁴.

If you have a complaint, raise it with Al Rayan Bank first. If you are unhappy with its final response, or eight weeks pass without one, you can take it to the Financial Ombudsman Service, which is free and independent. The Ombudsman publishes quarterly complaints data; in the first quarter of 2026/27 it recorded 27 complaints about Help to Buy and Shared Equity Loans and 2,103 about personal loans²⁶. In the first quarter of 2025/26 it recorded 157 complaints about buy-to-let mortgages²⁷. Our guide to complaining to the Financial Ombudsman about your mortgage explains how the process works.

If you are separating and hold a joint account with the bank, it is important to let it know. Your options may include removing one name from the joint account, closing it, or closing it and reopening separate sole accounts²⁰. In some circumstances the bank may be able to freeze the account while you agree financial arrangements, and if an account is frozen both parties will need to agree to any further payments, withdrawals or transfers²⁰. The bank can also help customers experiencing financial abuse by updating an address for mail, closing or suspending a joint account, setting up a new unconnected account, and changing PINs and passwords³⁰.