Diminishing Musharaka
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A shared ownership structure where one party gradually buys out the other.
This is the most common structure for halal home finance in the UK. The bank and customer jointly own a property. The customer pays rent on the bank's portion and simultaneously buys more of the bank's share each month until they own it outright.
Islamic perspective
This structure avoids riba because there is no interest charge. The payments have two components: rent for use of the property, and purchase of equity. Both are real, tangible transactions.
Example
Fatima uses Gatehouse Bank. She provides 20% of the purchase price and the bank provides 80%. Each month she pays rent for the bank's 80% share, plus an amount to buy more of the property. After 25 years, she owns 100%.
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