Quick summary of Shared Ownership vs full ownership
In short, a traditional mortgage allows you to buy the whole property from the outset, while Shared Ownership lets you purchase a share and pay rent on the rest.
A traditional mortgage generally requires a larger deposit and mortgage, whereas Shared Ownership can reduce the upfront amount needed. Read on for more detail.
What is a traditional mortgage?
A traditional mortgage is the most popular route to homeownership. With this type of mortgage, you purchase 100% of the property outright using a combination of your personal deposit and a loan from a mortgage lender, such as a bank or building society. The property acts as security for the loan until it is repaid.
The lender provides the majority of the property’s value, which you then repay over an agreed term – usually around 25 to 35 years, though shorter or longer terms may be available depending on your finances.
Each month, you make repayments that cover both the amount borrowed (the capital) and the interest charged by the lender. The size of your repayments will depend on several factors, including the amount borrowed, the interest rate type (fixed, variable, or tracker), and the length of the mortgage term. Once the mortgage is fully paid, you will own the property outright and no longer owe to the lender.
Deposit requirements and repayments
Usually, to secure a mortgage you’ll need a deposit of at least 5–10% of the property’s value. A larger deposit will give you access to a wider range of deals and more competitive interest rates.
Monthly repayments depend on your loan amount, interest rate, and term length. You’ll also be responsible for all maintenance, insurance, and ownership costs.
Pros and cons of a traditional mortgage
Pros:
You buy the whole property from the start: You own 100% of the home, although your lender retains a legal charge until the mortgage is repaid.
Greater flexibility when selling or remortgaging: You can sell or switch mortgage deals at any time without restrictions.
Builds equity if property value increases: As you repay your mortgage and property values rise, your financial stake in the home grows. (The value of your property can also fall.)
Cons:
Higher deposit and income requirements: You’ll need a larger deposit and income to qualify for a full mortgage than you might for a Shared Ownership mortgage.
Larger monthly repayments: Borrowing against the full property value usually means higher mortgage repayments than with Shared Ownership, although Shared Ownership buyers also need to budget for rent and service charges.
Greater financial exposure: If property values fall, any loss affects the full property value rather than only the share you own, as would be the case with Shared Ownership.
What is a Shared Ownership mortgage?
A Shared Ownership mortgage helps you buy a share (usually between 25% and 75%) of a property and paying rent on the remaining portion to a housing association such as Peabody. This makes it easier to step onto the property ladder with a smaller deposit.
For example, if you buy a 50% share of a £250,000 home, your share will cost £125,000. You'd fund this using a combination of a deposit and a mortgage, while paying a subsidised rent on the remaining 50%.
Over time, you can Staircase – buying more shares until you own the property outright.
Who is eligible for a Shared Ownership mortgage
Shared Ownership is open to:
- First-time buyers who can’t afford to buy outright
- Those who used to own a home but can’t afford to buy again
- Households with an annual income of £80,000 or less (or £90,000 in London)
See our eligibility page for the full details.
Pros and cons of getting a Shared Ownership mortgage
Pros:
Smaller deposit and lower initial mortgage repayments: Because you’re only buying a share of the property, the amount you need to borrow, and the deposit required are both lower than with a full mortgage.
Option to buy more shares later: You can increase your ownership over time through Staircasing, eventually owning 100% of your home if you choose.
A route to homeownership for those priced out of the market: Shared Ownership makes it possible for buyers who can’t afford to buy outright to get onto the property ladder and start building equity. See our costs of buying through Shared Ownership page for more information.
Predictable rent increases: Rent on the share you do not own is reviewed under the terms of your lease, giving you a defined framework for how it may change over time.
Cons:
You pay rent as well as mortgage repayments: Since you only own part of the property, you’ll still need to pay rent on the remaining share owned by the housing association. However, the total payments can often be cheaper than renting in the same area.
Restrictions on selling or subletting: There are sometimes conditions on who you can sell a Shared Ownership home to and whether you can rent out your home, which can limit flexibility. If you own less than 100% when you sell, the housing association will have a nomination period to find an eligible buyer (8 weeks with Peabody).
Limited ability to make major changes or improvements: Depending on your lease, you may need permission from the housing association or freeholder before making significant alterations or renovations to your home.
Comparing traditional mortgages vs Shared Ownership
Traditional mortgage vs Shared Ownership mortgage: quick comparison
Area | Traditional mortgage | Shared Ownership mortgage |
|---|---|---|
Ownership | You buy 100% of the property from the start, although the lender has a legal charge until the mortgage is repaid. | You buy a share of the property and pay rent on the remaining share to the housing association. |
Deposit | Your deposit is based on the full property value, so the upfront amount is usually higher. | Your deposit is based on the share you buy, which can make the upfront cost lower. |
Monthly costs | You make mortgage repayments and cover ongoing ownership costs, such as maintenance, insurance and any service charges where applicable. | You pay mortgage repayments on your share, rent on the remaining share and any service charges. |
Flexibility | You usually have more flexibility when selling, remortgaging or making changes, subject to mortgage, lease or planning restrictions. | Your lease may include restrictions around selling, subletting, staircasing or making major alterations. |
Long-term ownership | Once the mortgage is fully repaid, you no longer owe money to the lender. | You may be able to buy more shares through staircasing, potentially up to 100%, depending on your lease. |
Affordability and deposit size
Traditional mortgages require a larger deposit and income, making them less accessible for first-time buyers.
Shared Ownership, on the other hand, allows you to get started with a smaller deposit, since it's based only on the share you purchase.
Flexibility and long-term costs
Shared Ownership can be an accessible way to get onto the property ladder, however, this setup can also mean less flexibility compared to owning a home outright.
Shared Ownership homeowners may need approval from the housing association to make major alterations. In addition, increasing your ownership through staircasing can involve valuation fees and legal costs each time you buy a larger share.
While traditional buyers purchase the whole property from the outset, Shared Ownership offers a gradual route towards greater ownership through Staircasing.
Ownership rights and restrictions
With a traditional mortgage, you buy 100% of the property from day one. With a traditional mortgage, you own the property outright from day one. Shared Ownership buyers have limited ownership rights until they staircase to 100%.
Selling a Shared Ownership home may also involve offering it back to the housing association first.
Frequently asked questions about traditional mortgages vs Shared Ownership
With a traditional mortgage you buy the whole property from the start.
With a Shared Ownership mortgage, you buy a share of the property and pay rent to the housing provider on the remaining share.
Shared Ownership can be cheaper upfront because you only need a deposit and a mortgage for a portion of the property.
However, you'll also have to budget for the rent on the share you don't own, as well as service charges, and other normal bills.
Yes. You can increase your ownership share over time through Staircasing, eventually reaching full ownership.
With Shared Ownership, your regular monthly costs will usually include:
Mortgage repayments on the share you own
Rent on the remaining share (usually 2.75% of the value)
Service charges
Household bills, repairs and maintenance