Norton Rose Fulbright advises on financing of Sharia-compliant buy-to-let mortgages

Global law firm Norton Rose Fulbright has advised Offa on one of the UK’s first Sharia-compliant tranched private securitisations, which will originate Sharia-compliant residential buy-to-let (BTL) mortgages, known as BTL Home Purchase Plans (BTL HPPs).

BTL HPPs are an increasingly popular form of Sharia-compliant property purchase. Unlike a conventional mortgage, which typically involves borrowing money from a bank, a BTL HPP is a type of shared ownership agreement. The customer buys a share of the property, with the funder owning the remaining share and retaining the legal title. The customer usually has sole usage right to on-let and pays rent to the funder for their part of the property. They can also pay to increase their percentage of property ownership over time until they fully own the property and the legal title is transferred to the customer.

Norton Rose Fulbright advised Offa, as structuring and drafting counsel, on the transaction, which involved the issue of three classes of certificates, each of which has a slightly different risk and profit profile. This included advising on the unique tax elements of the deal, as BTL HPPs are subject to a special regime that means that stamp duty only has to be paid once – and not again upon the customer’s eventual full purchase of the home or on the transfer of BTL HPPs to a securitisation issuer, in the case of a securitisation financing – to ensure a level playing field with conventional mortgages.  

The Norton Rose Fulbright team was led by securitisation partner David Shearer, with Matt Hodkin leading on the tax-related elements. Further support was also provided by derivatives partner Yusuf Battiwala and regulatory partner Matthew Gregory. The wider team included associates Daisy Robson-Odugbemi, Regina Chan and Andrew van Wijk, and trainee solicitor Seb Parton (securitisation); counsel Fareed Muhammed, senior associate Will Scott and associate Giulia Schwartz (tax); counsel Sean Bruns and associate Sidney Thomas (derivatives); and associate Hishaam Khan (regulatory).

Amir Firdaus, Chief Finance Officer at Offa, said:

“As a company, we are committed to leaving behind the cumbersome systems and onerous paperwork associated with Islamic finance and bringing it into the 21st century with end-to-end digital processes that result in fast funding decisions.  This transaction is unprecedented for the UK Islamic finance market and it would not have been possible without the excellent problem-solving abilities and deep legal knowledge of the Norton Rose Fulbright team.”

Partner David Shearer said:

“Our role is to deliver successful outcomes for our clients and we are delighted to have completed this transaction for Offa. This is one of the first Sharia-compliant tranched private securitisations in the UK market. It marks a significant evolution of the UK’s Islamic finance market and we expect that UK Sharia-compliant securitisations will quickly grow in volume and sophistication. 

“Working on transactions where there are few or no existing precedents requires both a deep understanding of the relevant law and innovative legal thinking – things that the Norton Rose Fulbright team is well placed to provide. This deal required input across a wide range of teams within Norton Rose Fulbright, including securitisation, tax, derivatives and regulatory, and all contributed to a successful completion of this transaction.”
 

Norton Rose Fulbright’s global team advises clients on the full range of securitisation issues, across all jurisdictions. Its lawyers advise arrangers, sponsors and other participants, including rating agencies, on a wide range of asset classes, such as trade receivables, residential mortgages, commercial property, equipment leases, utility receipts, consumer loans, whole business securitisations and HP receivables. The team also has deep experience advising on complex infrastructure work, including secondary PFI/PPP, refinancing and the repackaging of infrastructure loans through funded securitisation and synthetic securitisation. Recent examples of the firm’s work include the securitisation of government IPT obligations issued to fund the construction of the Fourth Bridge over the Panama Canal and a private securitisation of solar PV panels in Spain.