Is it permissible to take out a housing loan with diminishing interest from a commercial bank, where the bank pays the agreed-upon price of the dwelling to the seller after the property becomes owned by the buyer and mortgaged to the bank?

This transaction is Islamically prohibited due to its inclusion of an interest-bearing loan. The bank lends the customer the price of the house for them to repay it in installments with a pre-agreed interest increase. This is precisely the usury (riba) forbidden by the explicit texts of the Qur'an and Sunnah (definition). It is obligatory to be wary of such a loan. "And whoever fears Allah – He will make for him a way out and will provide for him from where he does not expect."