Islamic Sharia law prohibits the payment or receipt of interest, which means that practising Muslims cannot use conventional mortgages. However, real estate is far too expensive for most people to buy outright using cash: Islamic mortgages solve this problem by having the property change hands twice. In one variation, the bank will buy the house outright and then act as a landlord. The homebuyer, in addition to paying rent, will pay a contribution towards the purchase of the property. When the last payment is made, the property changes hands.
An alternative scheme involves the bank reselling the property according to an installment plan, at a price higher than the original price.
In the United Kingdom, HSBC Bank plc was the first major bank to offer Islamic mortgages.