Why the Netherlands has had no halal mortgages until now
Not for want of interest. DNB, the AFM, the tax authority and several major banks all looked at it. A reconstruction of what kept stopping it.
·4 min read
The absence of halal mortgages in the Netherlands is not the result of a lack of interest. Quite the opposite. Both the major banks and the financial regulators have examined the question closely in the past. Even so, no structural and scalable halal mortgage has appeared on the Dutch market to date.
Serious interest, no market launch
Between roughly 2006 and 2008, Islamic finance was examined explicitly by, among others, De Nederlandsche Bank, the Autoriteit Financiële Markten, the tax authority and the Ministry of Finance. Several major banks also ran pilots and internal analyses, both then and in more recent years.
The conclusion was always the same: there is demonstrable demand, but the Dutch legal and fiscal framework does not fit the structure of a halal mortgage.
Legal obstacles under Dutch law
A halal mortgage is legally not a loan but a structure based on ownership, use and risk sharing. Widely used forms such as murabaha, ijara wa iqtina and musharaka al-mutanaqisa depart fundamentally from the classical mortgage loan. Under Dutch law these structures are quickly classified as hire purchase of immovable property (huurkoop onroerende zaken). That has far-reaching consequences.
The legislation on hire purchase of immovable property is designed primarily to protect consumers and carries stringent rules: extensive rights of rescission, restrictions on security structures, and an unfavourable position for the financier where payment problems arise.
For financiers this means higher risk and less enforceable security than under a conventional mortgage, which creates a structural disadvantage against conventional lenders.
No mortgage interest deduction
The Dutch tax system is built around interest. Mortgage interest relief (hypotheekrenteaftrek) is an essential part of housing affordability for consumers.
In a halal mortgage no interest is paid, but a profit component, a rental fee or a participation fee. For tax purposes that payment is not treated as interest, so the consumer does not qualify for mortgage interest relief. This makes a halal mortgage more expensive net than a conventional mortgage, despite comparable economic costs.
Double transfer tax
In almost every halal mortgage structure, legal ownership of the property passes through the financier. That is not incidental but a core requirement of Islamic law: the financier must genuinely be the owner or a co-owner in order to carry risk.
Under the current tax regime this triggers transfer tax (overdrachtsbelasting) when the financier buys, and again when ownership transfers to the consumer. The result is double transfer tax on the same property, which makes the structure close to economically unworkable. Other countries have created explicit tax facilities or exemptions for this. The Netherlands has not.
Why small adjustments will not solve it
The heart of the problem is that Dutch law and the Dutch tax system are designed around debt and interest. Islamic finance is based instead on ownership, use and risk sharing. So long as halal mortgages are assessed legally and fiscally as though they were disguised loans, there is no level playing field.
That explains why pilots were stopped and why banks withdrew, despite both social and commercial interest.
Looking ahead
That halal mortgages have been absent from the Netherlands so far does not mean they are impossible. It does require targeted changes to legislation and taxation, comparable to what other European countries have done. Without those changes, a halal mortgage remains a legally and fiscally suboptimal product.