To get out of this “lock-in” period will cost you a hefty sum.Lenders force you to pay standard rates for a period in a bid to make more money from you. Many of the cheap loans around at the moment don’t make much profit for lenders, so they have to take a long-term view and trap you at the end. This jump to standard mortgage repayments, which are higher at present, is being dubbed “payment shock” by people in the mortgage industry.Going on to variable interest rates can come as a jolt to the finances. The CML reckons that the average borrower ending a fixed or discounted mortgage deal and starting to pay standard rates will be charged an extra 0.75 per cent, equivalent to pounds 28 a month on a pounds 50,000 mortgage. You’ll then discover that in the small print on your mortgage contract it probably states that you have to pay standard variable mortgage rates for several years.

We’re piling into fixed-rate and discounted mortgages in droves: for example, 44 per cent of all loans taken out in the year to June 1997 were discounted.
The tricky part comes when your discounted or fixed-interest period ends. “You can’t judge anything as 100 per cent Islamic,” says Dr Abdelkaber Chachi, of Britain’s Islamic Foundation, and a specialist in Islamic finance. He adds that Musharaka arrangements fit more comfortably with the Sharia, than do Morabaha where the bank may not be genuinely sharing risk.”But if the choice is between two evils then Muslims should go for the lesser evil.”q Contacts: Islamic Investment Banking Unit, 0171-487 6626; Albaraka, 0171-499 9111; Robert Fleming, 0171-638 5858; Al Tadaman, 01706 351111.. IF YOU are still paying headline interest rates on your mortgage you’re in an oppressed minority. Research from the lenders’ industry body, The Council of Mortgage Lenders (CML), has found that as many as seven out of 10 home owners are paying “non-standard” – lower – borrowing rates.

The figures show that most of us have realised there’s no need to stick with the standard deals and help subsidise other people’s cheap mortgages. It mostly invests in blue-chip US and UK corporations, including utilities and pharmaceuticals.An alternative, which complies more closely with Sharia principles, is the Halal Mutual Investment Fund, managed by Al Tadamon Ltd and advised by Kleinwort Benson, which buys commodities and has a minimum investment of pounds 250.Unfortunately for Muslims, it is impossible to operate purely in accordance with Sharia principles in Britain. It is a share-based fund, but it boycotts companies that borrow heavily. The fund’s Sharia board of Islamic academics rule out shares in tobacco manufacturers, publishers of pornography, brewers, distillers and retailers of alcohol – including supermarkets and hotels. Robert Fleming, the City of London investment bank, offers its Oasis fund which requires minimum investments of $50,000 (pounds 31,000) and has been producing returns of 9 to 10 per cent net. A profit-sharing arrangement is acceptable.IIBU’s mortgage is what is called a Morabaha arrangement.

The bank buys a home on behalf of its customer, to whom it immediately re-sells the property at a higher price The client pays a monthly repayment fee. This might, for instance, mean that the home is purchased by the bank for pounds 100,000 and re-sold for pounds 140,000, with the customer repaying the higher figure over 15 years.Sharia law allows another type of mortgage, which IIBU intends to offer in the future as well, using the Musharaka principle. Under this arrangement the bank again purchases the property, but sells a proportion of the home to the occupant, on an agreed schedule, at prevailing market values. Morabaha mortgages operate as fixed-rate loans, while Musharaka schemes effectively offer variable rates.This is not the first Islamic mortgage available in Britain – and they are readily available in the Middle East – but it is the only one currently on offer here. The Albaraka Bank used to offer Musharaka mortgages, but it surrendered its banking licence in 1993 when tighter international banking regulations were introduced after the collapse of the infamous BCCI. Although BCCI attracted millions of pounds of investments from Muslims around the world, it did not adopt Islamic banking practices.Albaraka still functions as an Islamic lender, financing trade with the Middle East, and it continues to service the Islamic mortgages it issued when it was a bank.IIBU will not mortgage properties worth less than pounds 50,000, and it is currently not willing to offer remortgages.