Islamic Mortgage in UAE: All You Need to Know

What Is an Islamic Mortgage?

In Islam, money comes with a unique set of rules. You can gain monetary benefits only when there is fair trade happening. Under Sharia law, making more money from money is prohibited. Therefore, the Islamic mortgage system is technically not a traditional mortgage. Rather, it is a home financing structure based on a lease or sale agreement between a lender and a customer. In such situations, there is no interest payable.

In this way, Muslim buyers can engage in property transactions without obstructing their faith.

How Islamic Mortgages Work

Navigating through an Islamic mortgage is a relatively straightforward process.

In this process, a designated bank will buy a property for the buyer and either take rent from the buyer until the entire property value has been paid or sell it back to the buyer for a higher price. In this plan, despite paying in instalments, the buyer does not pay any interest.

An Islamic mortgage, like a regular one, will require the signing of a contract between both parties once they have agreed upon a property price. Typically, the buyer gives the bank a deposit amount, which can range from 20% to 40% of the total property value.

Until the buyer has paid off the entire property amount, the property legally belongs to the bank (or the lender). While rental rates in an Islamic mortgage are subject to fluctuation, these products generally have a fixed payment period in the contract, much like a standard mortgage.

Islamic Mortgage Options in the UAE

In Dubai, Islamic mortgages are structured in accordance with Sharia law, which prohibits interest (riba) and promotes ethical, asset-backed financing. While there are several models in Islamic finance globally, the one predominantly used for residential property purchases in the UAE is:

Lease-to-Own Agreement (Ijara)

Ijara is the most commonly used Islamic mortgage model in the UAE. Under this structure, the bank purchases the property and leases it to the buyer over an agreed term. The buyer makes regular rental payments, and once the full amount has been paid, the property is transferred into their sole name.

Throughout the Ijara term, both the bank and the buyer are listed as co-owners on the property’s title deed. This reflects the shared ownership structure central to Islamic finance.

Once the Ijara mortgage is fully paid off, the bank issues a clearance certificate. The buyer can then submit this certificate to the Dubai Land Department (DLD), which will update the title deed to reflect full ownership by the buyer alone.

Other Forms of Islamic Mortgage

While Ijara is the dominant structure used for Islamic home financing in Dubai, there are other Sharia-compliant models recognised in Islamic finance. These are not commonly offered for residential mortgages in the UAE, but are important to understand in a broader context:

Partnership Agreement (Musharaka)

Musharaka is a joint ownership model where the bank and the buyer purchase the property together. The buyer gradually buys out the bank’s share through regular payments, ultimately becoming the sole owner. This structure reflects the Sharia principle of shared risk and reward, but is rarely used for property purchases in Dubai.

Cost-Plus Financing (Murabaha)

In a Murabaha agreement, the bank purchases the property and sells it to the buyer at a pre-agreed markup. The buyer repays this amount in instalments. While straightforward in theory, Murabaha mortgages are not widely available for residential buyers in Dubai, and are more commonly used in asset or commodity finance.

Construction Financing (Istisna)

Istisna is used for properties under construction. The bank funds the build based on agreed terms and specifications, and the buyer repays the cost over time. While valid under Islamic finance, Istisna is generally not used for individual off-plan property purchases in Dubai and is more typical in large-scale development or commercial projects.

Benefits of Choosing an Islamic Mortgage

Here are some benefits for those who go with an Islamic mortgage:

• This pathway facilitates transactions that are both transparent and ethical, complying with Sharia law, making it easier for Muslims to engage in property transactions.

• For Muslims who follow Sharia law, this is an excellent way to pursue home ownership, as they do not have to invest a substantial amount of money immediately and can work their way towards home ownership.

• One of the perks of Islamic mortgages is the flexible financing system, which gives buyers several options to fund their property. This makes property ownership even more accessible for people of different backgrounds and financial capabilities.

Key Differences Between Islamic and Conventional Mortgages

Let us proceed to understand an Islamic mortgage vs a conventional mortgage, as there are several key differences between both pathways.

• Islamic mortgages do not involve activities such as derivatives trading or speculation, which are generally allowed in conventional finance.

• Conventional mortgages do not have strict rules around ethics, instead focusing on profitability. Islamic mortgages place emphasis on ethical transactions, ensuring that neither party is impacted detrimentally, and profit-chasing is not the main focus.

• Risk-sharing is a major tenet of Islamic mortgages, wherein both the bank and the buyer share the risk of any profits or losses. In conventional mortgages, the risk mainly falls upon the buyer, not the bank.

• Interest rates are applicable in conventional mortgages but are strictly prohibited in an islamic mortgage.

Who Can Apply for an Islamic Mortgage

Contrary to what many people assume, an Islamic mortgage is not just a provision for Muslims. In fact, anyone can apply for this mortgage, provided they meet the eligibility criteria.

The criteria include:

• Non-residents and expats must have a stable income source with a good credit score.

• Businesses wanting to carry out an islamic mortgage must not be involved in any activities that are prohibited under Sharia law, such as gambling, alcohol, or speculative trading. The company should maintain a transparent operational model, which aligns with the risk-sharing principles of this mortgage pathway and asset-backed financing.

Applying for an Islamic mortgage is relatively simple. The buyer can have a consultation with a mortgage broker, wherein their case and finances are assessed to determine the best pathway.

Once that is decided, the buyer must submit the required documents to the bank, and their application will be reviewed. Upon approval, a contract will be drawn up stipulating the kind of mortgage and its conditions, which both parties will sign. Depending on the contract, funds will either be disbursed or the buyer will follow the predetermined payment period.

Top Islamic Mortgage Providers in Dubai

Here is a list of the top Islamic banks that are solely focused on Islamic finance, including Islamic mortgages in Dubai:

• Abu Dhabi Islamic Bank

• Dubai Islamic Bank

• Al Hilal Bank

• Sharjah Islamic

Some banks also offer Islamic mortgages in addition to traditional financing methods. These include:

• RAK Bank

• National Bank of Fujairah

• Commercial Bank Of Dubai

• Mashreq Bank

Conclusion: Your Path to Sharia-Compliant Home Financing in Dubai

Whether you're a first-time buyer or a seasoned investor, understanding the fundamentals of an Islamic mortgage in Dubai can help you make confident, values-aligned financial decisions.

While several Islamic finance models exist in theory, it’s important to know that Ijara is the primary structure used for Sharia-compliant home financing in the UAE. This lease-to-own model offers predictable payments, dual ownership, and a non-interest-bearing alternative to conventional lending, making it a powerful option for buyers seeking ethical, asset-backed financing.

At Engel & Völkers Dubai, our team supports you at every stage, from finding the right property to connecting you with experienced mortgage advisors who understand the ins and outs of Islamic mortgage approval, documentation, and DLD registration.