Home Loan Rate Cuts Enhance Housing Affordability in India for 2025
House purchase affordability has significantly improved in 2025, thanks to the substantial drop in interest rates since the end of 2024, according to Knight Frank India's Affordability Index. The report reveals that Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed closely by Pune and Kolkata at 22%.
In Mumbai, housing affordability has seen a remarkable improvement, with the EMI-to-income ratio declining to 47%. This is the first time in the city’s history that affordability has fallen below the 50% threshold, marking 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, has shown 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 basis points over a nine-month period starting May 2022, leading 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 basis points 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 acted as a catalyst for the residential real estate market, recalibrating both property prices and lending rates, which significantly boosted demand. This residential market momentum has persisted, supported by strong economic factors such as effective inflation control and continued economic growth, which have 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.
The affordability level in Mumbai has improved significantly since the pandemic and has crossed the affordability threshold of 50% in 2025. A stable business and income growth environment, coupled with reasonable price growth and an increasingly enabling financing environment, were the major factors behind this improved affordability. In contrast, the National Capital Region (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 and weighted average values saw improvement over the year. These markets continue to be buyer-friendly, with affordability well below the threshold.
