Islamic home finance
Islamic home finance pays for your home through a lease, a sale or a partnership instead of a loan with interest. The Central Bank’s mortgage rules still apply.
Short answer
The difference is the contract, not the rules. The bank leases you the home, sells it to you at an agreed profit, or buys it with you.
The Central Bank’s mortgage limits apply in the same way. The structure alone does not make it cheaper or dearer, so compare offers on total cost.
It is a way to pay for a home that follows Shari’ah principles. One of those principles is that no riba, or interest, is charged.
So the bank does not lend you money at interest. It uses a contract that UAE Islamic banks describe as based on actual buying and selling. For a home, three come up: Ijarah, a lease that ends in ownership; Murabaha, a sale at an agreed profit; and diminishing musharaka, a partnership you buy the bank out of.
This page explains how they work. If you want to know whether you can borrow at all, and roughly how much, what UAE banks assess covers that.
A conventional mortgage is a loan. You borrow the money, you own the home, and you pay interest on what you owe.
UAE Islamic banks describe their own approach differently. They rely on Shari’ah contracts such as Murabaha, Ijarah and Istisna, and avoid riba. A conventional bank relies on loans with interest, fixed or variable.
The Central Bank’s mortgage rules say the same thing from the other side. Islamic finance has specific features, but a bank offering it is generally exposed to the same types of risk as a conventional mortgage lender.
So the change is in how the deal is built and described. It is not a different set of limits, and it is not by itself a different price.
Ijarah is a lease that ends in ownership. You will also see it called Ijarah Muntahia Bittamleek.
One UAE Islamic bank describes it this way. The bank buys the property and leases it to you for an agreed term. Your rental payments cover the cost of the property and the bank’s profit. Once you have met every obligation under the lease, ownership passes to you through a sale at a token price.
Another describes the rent as variable, paid over a set period, with the title passing to you once every payment is made. A third buys the home from the seller, or from you, and leases it back to you on the agreed payment plan.
A home that is not built yet works differently at that third bank. Under Istisna’a the bank has the property built. A forward Ijarah then leases it to you once it is finished.
Murabaha is a sale at an agreed profit. The bank sells to you at a price that includes a margin you both agree.
The purchase price, the selling price, other costs and the margin must be stated clearly when the sale is agreed. The bank describes the margin as what pays it for the time value of its money.
One detail matters to you. Once you owe an amount under a sale such as Murabaha, it stays fixed and may not be increased. At least one UAE Islamic bank publishes a Sharia certificate for property finance on a Murabaha structure.
It is a partnership you buy your way out of.
You and the bank buy the property together, so you share ownership. The bank leases its share to you and you pay rent on it. At agreed intervals you buy a pre-agreed slice of the bank’s share, so your part grows and the bank’s shrinks. At the end of the lease term the whole property passes to you through a Sharia compliant sale.
In the product that bank describes, the rent is EIBOR plus a margin on what is left of the bank’s share. That description comes from its real estate finance pages rather than its home finance pages, so ask whether it is offered for the home you are buying.
| Ijarah | Murabaha | Diminishing musharaka | |
|---|---|---|---|
| What it is | A lease that ends in ownership | A sale at an agreed profit | A partnership |
| What you pay | Rent covering the cost and the bank’s profit | The agreed price, which stays fixed | Rent on the bank’s share, plus buying that share |
| When the home is yours | After every obligation is met, by a sale | Under the sale itself | At the end of the term, by a sale |
These are how UAE Islamic banks describe the contracts. The exact terms are set in your own documents, and those are what to read.
The word is different, and so is the contract. Whether the number behaves differently depends on the offer.
The Central Bank lets Islamic banks use terms such as profit and finance. Its fee rules apply to Shari’ah-compliant banking, except that the amount is worked out under Shari’ah principles rather than as interest. The mortgage rules write interest rates or profits side by side, and require either to be published clearly, with how it is calculated.
In practice a profit rate can move with the market. One bank says its home finance profit rates are linked to EIBOR. Another’s key facts statement builds its variable profit rate from a fixed bank margin plus one-month EIBOR, and says the monthly rent may change as EIBOR does.
So ask the same questions you would ask of any mortgage. Is the rate fixed, and for how long? What does it move to afterwards? What will you pay in total?
Yes. The mortgage regulations say that, as well as the requirements of the Shari’ah advisory committees for each type of contract, the requirements of the regulations should also be complied with when mortgage finance is granted under Shari’ah principles.
Those regulations apply to banks, finance companies and other institutions that provide mortgage finance. They set a maximum loan to value, a ceiling on the share of your income that goes to debt, tested against higher rates, and a maximum length for the finance.
None of those changes because the contract is Islamic. How much of the property’s value a bank may finance is explained in how loan to value works, and the income ceiling in the debt burden ratio.
The rules are minimum standards. A bank may apply stricter limits of its own, Islamic or not. The calculator applies the limits to your figures and shows which one holds you back.
The Central Bank’s fee rules apply to Shari’ah-compliant banking services. Their fee schedule caps the early or partial settlement fee on home loans at 1% of the outstanding balance or AED 10,000, whichever is less.
The mortgage rules add one thing. The most you can be charged to repay early or move to another bank is the fee, and/or the bank’s actual cost of breaking a fixed period. They also say nothing should stop you refinancing with another bank.
Your documents must set out the pre-payment policy, and the fees in a separate schedule. Read both before you sign. What switching costs covers the rest of the charges on a move.
Islamic home finance documents call the cover that goes with the finance takaful. What you need depends on the bank and the property.
The mortgage rules require the insurance requirement to be stated in your documents, so that is where to look. One bank’s key facts statement, for example, lists life and permanent disability takaful as required, and property takaful cover on a ready home.
Ask what cover is required, who arranges it, and whether its cost is inside your monthly payment or on top of it.
Not by itself. The contract changes how the payment is described. It does not decide the price.
What you pay comes from the same things you would compare on any offer: the margin, the benchmark it follows, the fees and the cover. Any of those can be higher or lower on an Islamic offer than on a conventional one.
The rules say you should be given the total cost over the life of the finance. That is the number to compare, not the headline rate.
Start with the question only you can answer, then compare like with like.
CredMe applies the limits that fit your situation and shows which one is holding you back. That is an initial assessment, not a lending decision. A CredMe Mortgage Consultant goes through it with you before any bank is approached, and the bank underwrites the application and makes the final decision. CredMe is not a bank and cannot approve or decline a mortgage.
Written by CredMe Team
Based on CredMe's mortgage assessment methodology and verified regulatory and bank sources
Last reviewed 14 September 2026
Every rule here comes from the Central Bank rulebook, listed below. Every description of how a contract works comes from explanations UAE Islamic banks publish about their own home finance: product pages, a glossary and a key facts statement, each opened on 14 September 2026. CredMe guides do not name individual banks, quote no rates and rank no banks.
Indicative guidance only. Not a formal offer of finance, not a lending decision and not a Shari’ah ruling. Each bank sets its own terms within the rules, and every figure depends on full underwriting by the bank. CredMe is not a bank and cannot approve or decline a mortgage. See our disclaimer.
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What loan to value means on a UAE mortgage: what the ratio is measured against, which cap applies to which buyer and property, and why the regulatory maximum is an outer limit rather than an offer.
The UAE debt burden ratio explained: what counts as income, what counts as debt, why 50% is a ceiling rather than an entitlement, and how the stress test changes the answer.
What it costs to move a UAE mortgage to another lender: the charges capped by the Central Bank, what the land department charges to transfer, and how to work out your break-even.
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