Lower Home Loan Rates Make Homes More Affordable Across India’s Big Cities

Buying a home became meaningfully more affordable across India’s major cities in 2025, as falling home loan interest rates eased the pressure on household finances, according to Knight Frank India’s latest Affordability Index.

The index, which tracks the share of household income spent on monthly home loan EMIs, shows sustained improvement across eight key cities, reversing the stress seen during the post-pandemic rate hike cycle. The most striking milestone came from Mumbai—India’s costliest housing market—which crossed a historic threshold for the first time.

Mumbai’s EMI-to-income ratio dropped to 47 percent, slipping below the psychologically critical 50 percent mark. This signals a shift toward more sustainable affordability in a city long known for pushing buyers to financial extremes.

Among the top eight cities, Ahmedabad emerged as the most affordable housing market, with homebuyers spending just 18 percent of their income on EMIs. Pune and Kolkata followed closely at 22 percent each, underscoring how tier-one and tier-two markets are increasingly aligned on affordability.

Knight Frank attributed the steady improvement to a combination of income growth and a favourable interest rate cycle. During the pandemic, affordability surged as the Reserve Bank of India slashed policy rates to historic lows. That momentum stalled briefly after the RBI raised rates by a cumulative 250 basis points between May 2022 and early 2023, tightening borrowing conditions.

Since February 2023, rate stability—and more importantly, cumulative cuts of 125 basis points since February 2025 amid easing inflation—has once again tilted the equation in favour of homebuyers. This environment has helped residential sales remain close to the post-pandemic peak levels achieved in 2024 and is expected to support demand well into 2026.

Most cities either held steady or improved on affordability. The National Capital Region (NCR) was the only exception, recording a marginal dip. Knight Frank attributed this to a sharp rise in weighted average prices, driven by stronger demand in the premium housing segment. Even so, NCR’s affordability levels remain comfortably within accepted thresholds.

The broader takeaway is clear: softer interest rates are reshaping housing economics across India, making ownership more viable, even in markets once considered prohibitively expensive.