Home Loan Rate Cuts Boost Housing Affordability In India In 2025: Report

Homebuyers Get Relief in 2025 as EMIs Fall, Affordability Improves Across Cities

House purchase affordability of homebuyers has improved in 2025 as interest rates have dropped significantly since the end of 2024, as seen in , Affordability Index of Knight Frank India.

Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed by Pune and Kolkata at 22%, the report said. In Mumbai, housing affordability has improved significantly, with the EMI-to-income ratio declining to 47%. This marks the first time in the city’s history that affordability has fallen below the 50% threshold, signalling a new and more sustainable level of housing affordability.

Knight Frank India’s Affordability Index, which measures the proportion of household income spent on EMIs, showed a consistent improvement across the eight major Indian cities between 2010 and 2021.

Affordability strengthened further during the pandemic as the Reserve Bank of India (RBI) lowered the policy repo rate to decade lows. However, in response to elevated inflation, the RBI increased the repo rate by 250 bps over a nine-month period beginning May 2022, which led to a temporary deterioration in affordability during 2022. Rate stability from February 2023 onward supported a gradual recovery in affordability conditions.

More recently, with economic growth remaining resilient and inflation easing materially, the RBI has reduced the repo rate by 125 bps since February 2025, resulting in a further improvement in affordability across most housing markets. This supportive rate environment has helped residential sales sustain close to the post-pandemic peak recorded in 2024. The supportive interest rate environment is likely to continue into 2026, underpinned by the Indian economy’s sustained and stable growth momentum.

The COVID-19 pandemic became a catalyst for the residential real estate market, triggering a recalibration of both property prices and lending rates that significantly boosted demand. This residential market momentum has persisted, supported by strong economic factors such as effective inflation control, and continued economic growth, which has improved home affordability and catapulted residential sales. Entering 2025, concerns around excessive market heating and the possibility of a sharp correction began to emerge among stakeholders. However, sales activity has remained close to the highs recorded in 2024 and the market is on track to close the year without any material disruption.

Mumbai breaches affordability threshold for the first time; affordability worsens in NCR

The affordability level in Mumbai has improved significantly since the pandemic and has crossed over the affordability threshold of 50% in 2025. A stable business and income growth environment coupled with reasonable price growth and increasingly enabling financing environment were the major causal factors behind this improved affordability. In contrast, the NCR was the only major market to register a deterioration in affordability during the year, driven by a sharp rise in weighted average prices due to heightened activity at the premium end of the market. Even so, affordability levels in NCR remain well within acceptable limits and continue to be significantly better than the 50% threshold that signals market stress.

Home affordability in Bengaluru and Hyderabad markets remained unchanged as both demand as well as weighted average values saw improvement over the year. Here too, affordability well below the threshold keeping these markets buyer friendly.