Lower home loan rates improve housing affordability in major Indian cities in 2025: Report

New Delhi [India], December 24 : The house purchase affordability of homebuyers has improved in 2025 as interest rates have dropped significantly since the end of 2024, Knight Frank India said in a report releasing its Affordability Index.

Knight Frank India's Affordability Index, which measures the proportion of household income spent on EMIs, showed a consistent improvement across the eight[1] major Indian cities between 2010 and 2021.

The report highlights that Ahmedabad, Pune and Kolkata have emerged as the most affordable housing markets, while Mumbai has crossed a key affordability milestone for the first time.

According to the Affordability Index, Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed by Pune and Kolkata at 22%. 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.

Mumbai recorded a notable improvement, with the EMI-to-income ratio declining to 47%, marking the first instance the city has fallen below the 50% affordability threshold, widely housing becomes financially stressful for buyers.

The housing affordability has steadily improved over the past decade, aided by income growth and supportive interest rate cycles. During the pandemic, affordability strengthened sharply as the Reserve Bank of India (RBI) cut policy rates to historic lows.

However, a cumulative 250 basis-point repo rate hike between May 2022 and early 2023 led to a temporary dip in affordability.

Stability in interest rates from February 2023, followed by a cumulative 125 basis-point rate cut since February 2025 amid easing inflation, has once again improved affordability levels across most cities. This environment has helped residential sales remain close to post-pandemic peak levels achieved in 2024 and is expected to continue supporting demand into 2026

While most cities witnessed stable or improved affordability, the National Capital Region (NCR) was the only market to see a marginal decline. Knight Frank attributed this to a sharp rise in weighted average prices driven by increased activity in the premium housing segment. Despite this, NCR affordability remains well within acceptable limits.

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