LONDON (Reuters) - Britain's government sought to bolster London's position as a centre for Islamic finance on Tuesday by extending its 'Help to Buy' mortgage scheme to loans that comply with Islamic law.
Help to Buy was launched last year and offers banks insurance against the risk of lending to home-buyers who cannot afford large mortgage deposits.
Britain's finance ministry said property finance plans that circumvent Islam's bar on interest payments would now be eligible in the same way as standard mortgages.
"The Help to Buy extension builds on the government's commitment to support the UK Islamic finance market ... and retain London's position as the premier western Islamic financial centre," the finance ministry said in a statement.
Islamic finance is worth around 11 billion pounds a year to Britain, the government added.
Later this year Britain aims to become the first Western country to issue a bond that complies with Islamic law, known as a sukuk, in a further attempt to cement London's place as the main Western centre for Islamic finance.
However, the sum of money that it intends to raise - around 200 million pounds - is small and in the past the government's debt issuance agency has had doubts about whether Islamic finance offers value for money and said the bond is likely to be a one-off.
The finance ministry said Help to Buy Islamic mortgages would be provided by the Islamic Bank of Britain, which is owned by Qatar's second-largest bank Masraf Al Rayan.
Under the mortgages, the property is owned by the bank and home-buyers purchase it in stages, paying the bank rent on the rest of the property.
(Reporting by David Milliken; Editing by Toby Chopra)