Educational content only. We analyze the Help to Buy
scheme based on the principles of Musharakah (Partnership) and
Riba al-Nasi'ah (Interest on delay).
This is not financial, legal, or religious advice. Please consult a qualified
scholar or professional for your specific situation. We do not issue fatwas.
The "Help to Buy" equity loan scheme was designed to help people with small deposits buy new-build homes. While the scheme is now closed to new applicants in England (as of 2023), many Muslims are currently IN the scheme or looking at similar successor schemes in Wales/Scotland. Is this government "partnership" actually halal?
Scholarly consensus overview
Help to Buy is a hybrid product. Scholars generally find the Government Loan portion to be conceptually acceptable during the first 5 years (as it mimics equity), but the scheme requires you to take a conventional interest-bearing mortgage for the remaining 75%. This mandatory linkage to Riba makes the overall package problematic.
Understanding the Structure: The 'Equity Loan'
Unlike a normal loan, an "Equity Loan" means the government owns a percentage of your house value, not a fixed cash debt. If house prices go up, you owe them more. If prices crash, you owe them less.
From an Islamic perspective, this risk-sharing arrangement (Profit and Loss Sharing) is actually more shariah-compliant than a standard bank loan, which demands its money back regardless of the asset's performance.
Tool 1: Scheme Structure Breakdown
See how the three parts of the financing stack up. Notice that the "Problem" isn't usually the government loan itself, but the massive bank mortgage sitting underneath it.
The Year 6 Interest Trap
For the first 5 years, the government loan is interest-free. However, starting from Year 6, you begin paying a "Management Fee." This fee is calculated as 1.75% of the loan, rising by RPI (Inflation) + 1% every single year.
Crucially, these payments do not pay off the loan. They are purely servicing costs—functionally identical to interest.
Tool 2: The 'Ticking Clock' Analyzer
Many buyers assume they will "sort it out" before Year 6. Use this tool to visualize the cost if you get stuck in the scheme longer than planned.
Scholarly Analysis: Shirkah or Riba?
The nuances of the Help to Buy contract have led to detailed debates:
- Argument for "Equity": Because the government shares the downside risk (negative equity), scholars like Mufti Faraz Adam have noted that the loan structure itself resembles a valid Musharakah (Partnership) more than a loan during the first 5 years.
- The "Condition" Issue: The main blocker is that the scheme's rules explicitly states the buyer MUST have a first-charge mortgage with a qualifying lender. Since almost no Islamic banks participated in Help to Buy, a Muslim was effectively forced to take a Haram mortgage to access the Halal government loan.
Tool 3: Path Finder
So if Help to Buy forces you into Riba, what are the alternatives?
The Red Line
Where do scholars draw the line?
The prohibition centers on the mandatory linkage to interest.
- 1Year 6+ Payments:
Any payments made after Year 5 are considered pure Riba (interest) because they are a charge for the delay in repayment, without reducing the capital balance.
- 2The Mortgage Component:
Even if the government loan was 100% Halal, funding the remaining 75% via a conventional mortgage poisons the transaction. You cannot facilitate a permissible contract via an impermissible one.
Summary & Practical Guidance
- Exit Immediately: If you are currently in a Help to Buy deal nearing Year 6, your priority must be to refinance (remortgage) out of it into a Shariah-compliant HPP to avoid the interest fees.
- Use a LISA: For new buyers, the Lifetime ISA offers a similar 25% "boost" but as a cash gift, completely free of Riba/Equity complications. This is the gold standard for Muslim first-time buyers.
- Avoid "New" Schemes: Be wary of developer-led "deposit unlock" schemes. Always check: does this require a conventional mortgage?
Methodology
Analyzing Government Schemes
We reviewed the official "Help to Buy: Equity Loan" funding guide (2021-2023) and the terms of the Homes England contract. Structure was cross-referenced with AAOIFI Standard No. 12 (Sharika) and Standard No. 1 (Trading in Currencies - for the loan aspect).
- Homes England: Buyers' Guide to the Equity Loan.
- Amanah Advisors: "Islamic Mortgage Alternatives" Report.
- Qardus Analysis: "The Riba Trap in Government Schemes".
- GOV.UK: Management Fee calculation tables.