Lower home loan rates improve housing affordability across major cities in 2025: Knight Frank

Lower home loan interest rates have significantly improved housing affordability across seven of India’s eight major cities in 2025, according to Knight Frank India’s latest Affordability Index.

The report further showed that Ahmedabad has emerged as the most affordable housing market, with households spending just 18% of their income on home loan EMIs.

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Pune and Kolkata follow closely, each recording an EMI-to-income ratio of 22%. These levels are well below the 50% threshold typically considered the upper limit of affordability by lenders.

Mumbai has achieved a notable milestone. The city’s EMI-to-income ratio has fallen below the critical 50% mark, improving to 47% in 2025.

This shift reflects a combination of easing interest rates, steady income growth, and moderated price increases, signalling a more sustainable affordability environment for homebuyers, Knight Frank India said.

The report attributes the improvement largely to the Reserve Bank of India’s monetary easing. After raising the repo rate by 250 basis points between May 2022 and early 2023 to combat inflation, the RBI has cut rates by 125 basis points since February 2025.

This has reduced borrowing costs and strengthened affordability across most urban housing markets, it said.

While affordability improved or remained stable in most cities, the National Capital Region (NCR) was the sole market to see a marginal deterioration in 2025.

The decline was driven by a sharp rise in weighted average prices, largely due to increased activity in the premium housing segment. Despite this, NCR’s affordability remains comfortably within acceptable limits, with an EMI-to-income ratio of 28%.

Bengaluru and Hyderabad recorded stable affordability levels, as rising demand and higher prices were offset by income growth and stable financing conditions. Chennai also saw improvement, with affordability strengthening to 23% in 2025.

The report also highlights that residential sales have remained close to the post-pandemic peak of 2024, despite earlier concerns about market overheating.

With India’s economy projected to grow at a healthy pace and interest rates expected to remain benign, Knight Frank expects housing affordability to continue supporting homebuyer demand into 2026.