NEW DELHI: A reduction in home loan interest rates has enhanced housing affordability for buyers in seven of India’s eight major residential markets by 2025. According to Knight Frank India’s latest Affordability Index, Ahmedabad, Pune, and Kolkata rank as the most affordable cities.
The index assesses the percentage of household income allocated for home loan EMIs, revealing that Ahmedabad has the most favorable market with an EMI-to-income ratio of 18%. Both Pune and Kolkata follow closely with a 22% ratio, indicating improved affordability.
In Mumbai, India’s priciest housing market, affordability also saw a significant boost, with the EMI-to-income ratio decreasing to 47% in 2025. This signifies a notable improvement as it is the first occasion Mumbai has surpassed the critical 50% affordability mark, typically associated with housing stress, showcasing better financing conditions and stable income growth.
Knight Frank credits this enhancement mainly to lower policy rates. After a cumulative increase of 250 basis points in the repo rate from May 2022 to early 2023 to combat inflation, interest rates eventually stabilized and dropped. Since February 2025, the Reserve Bank of India has cut the repo rate by 125 basis points, alleviating borrowing costs and enhancing affordability in most housing markets.
The report indicated that affordability had consistently improved from 2010 to 2021 and saw further gains during the pandemic, when interest rates reached decade lows. Despite a temporary decline in affordability in 2022 due to rate hikes, the trend has since reversed, bolstered by stable rates, easing inflation, and robust economic growth.
Among the key markets, the National Capital Region (NCR) experienced a slight decline in affordability in 2025, attributed to rising weighted average prices driven by increased activity in the premium housing sector. Nevertheless, the report states that affordability in the NCR remains substantially below the 50% stress threshold.
In Bengaluru and Hyderabad, affordability levels remained relatively unchanged, as gains in income were countered by higher property prices. Nonetheless, both markets continue to be favorable for buyers, with affordability metrics comfortably below stress levels.
Knight Frank noted that supportive affordability conditions have sustained residential sales near the post-pandemic peaks observed in 2024, despite earlier concerns about a potential market overheating. With the RBI forecasting a GDP growth of 7.3% in FY2026 and a favorable interest rate landscape, the consultancy anticipates that housing affordability will continue to bolster end-user demand in 2026.
