I would like to buy a house and I've heard that there is English bank called HSBC that does interest free mortgages based on Sharee'ah principles. I would greatly appreciate if you could clarify this matter on whether it is Halaal or Haraam?

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.

We do not know the bank and its transactions whether or not they are according to Islam . However, if the bank is honest in its claim that the transaction is free from interest and that it is based on Islamic principles, then it becomes permissible to deal with it.

You may verify the matter by enquiring whether the bank has an Islamic branch that works under the supervision of an Islamic committee or not. Then asking the scholars, who are in the committee, whether they are authentic ones, and whether or not the bank implements the Islamic rulings. Or you may get the detailed procedure of the bank and ask any trustworthy scholar about the authenticity and lawfulness of that procedure adopted by the bank.

In short, if the mentioned transaction is a Muraabahah one (i.e. the bank purchases a house and then sells it to you in installments with profits after possessing it, then it is allowed). Keeping the sold item as mortgage to secure the payments is also allowed.

Dealing with an interest-based bank in lawful transactions is allowed. The Prophet and his Companions used to deal with the Jews in selling, purchasing, hiring, and similar lawful transactions although the Jews used to deal with interest.

‘Aa'ishah said: "The Prophet died while his armor was mortgaged to a Jew for thirty Saa's of barley." [Al-Bukhari and Muslim]

If the bank gives you the price of the house and then you pay the amount back in installment more than the taken amount , then it is forbidden since it is a pure Riba transaction.

If the Muraabahah transaction does not abide by Islamic principles and conditions, then you are not allowed to involve in such a transaction with that bank.

For more benefit, please refer to Fataawa 92631, 92426 and 90516.

Allaah Knows best.