Islamic mortgages, the debate!

We, my husband and I, finally settled in the UK and started to consider buying our own house, where we can raise our children and where we can finally feel we are home. After a long search for prices, safe neighbourhoods, schools catchment areas, schools ofsted reports..etc. we finally decided on a house that we both like. We thought, at last the hard work is over and it is time to rest and let the solicitor and the bank do the rest for us. Yet, we were faced by the actual utmost decision, should we take a conventional mortgage or an Islam home purchase plan?

Let me first explain to those of you who are not very familiar with this issue, what the actual problem was. Islamic economics is based mainly on interest-free financial activities. Interest (also called "ribah" from the Arabic word, and "usury") are completely forbidden in Islam. This prohibition is mainly based on the financial lending activities in Arabia during Prophet Muhammad (Peace be upon him) time. During that time, wealthier people used to lend the poor on usury bases, where the debtor will have to pay the debt back with a sum of usury on top of it. Of course, this act would only lead the poor to drown more and more into debt. Hence, Islam completely prohibited such act in order to avoid human suffering and to abolish the exploitation of the poor. From a more economic perspective, money should never be considered as a commodity for trade, and should only be the means for actual trade. In other words, under Islamic Shariah law you are prohibited to rent money with interest. Other means of finance are considered shariah compliant, but the conventional mortgage activity is considered of course interest bearing and therefore, not permissible.
As a moderate Muslim family we were faced with this huge dilemma. How will we buy the house we like? We started to read about Islamic solutions to avoid the need for conventional mortgages. These solutions are called Islamic home purchase plans. But again we were struck by the long and complicated debate about how Islamic these "Islamic" plans actually are.

Islamic home purchase plans are based on the idea of diminishing "musharakah" (musharakah is the Arabic word for partnership). In other words, the lender and the debtor buy the house in partnership according to the percentage of the down payment. Then, the bank gives you the right to rent the house, as you are the weaker partner with a smaller percentage in the partnership,

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