Lloyds TSB already offers an Islamic current account

The UK's first specialist Islamic bank opened last year and Lloyds last month introduced an Islamic current account.

Lloyds said it wanted to offer a service to Muslims who had decided not to buy a home for religious reasons or have had to take on a normal mortgage.

Muslims are not allowed to pay or accept interest, and analysts said that there may be strong demand for targeted services and products.

Pilot scheme

"With traditional, interest-based mortgages out of the question for many, the choice tended to be between going against the faith or avoiding a mortgage altogether," said Mark Austin, of Lloyds TSB Islamic Financial Services.

"Our research tells us that three-quarters of the country's Muslims want banking services that meet the needs of their religion."

Under the terms of the new mortgage, Lloyds will not lend money but will buy the house by providing up to 90% of the purchase price.

The customer would then provide the remaining funds, paying the total back over an agreed term, as well as providing a rental payment.

Lloyds is testing the mortgage in five branches; Edgware Road in London; Temple Row and Saltley in Birmingham; George Street and Leagrave in Luton.