India’s Home Loan Boom Shifts to Smaller Cities in 2025
Home loan demand in India is shifting away from major cities. In 2025, smaller urban centres saw a sharp rise in borrowing, outpacing growth in metropolitan areas. This trend highlights a broader spread of housing finance across the country.
Tier-2 and Tier-3 cities experienced an 81% year-on-year increase in home loan volumes during 2025. This surge far exceeded the 52% growth recorded in Tier-1 cities. As a result, these smaller markets accounted for 64% of total home loan volumes, up from 60% in 2024.
The rise in demand is largely driven by first-time and mid-income buyers. Many are turning to smaller cities due to affordability challenges in expensive metros like Mumbai or Delhi. Cities such as Chandigarh, Jaipur, Surat, Madurai, and Palwal saw particularly strong loan activity. Meanwhile, premium borrowing remains concentrated in high-income hubs. Mumbai, Gurugram, and Hyderabad led with nearly 20% growth in average loan sizes. Yet the overall expansion of demand into smaller urban centres suggests a more balanced housing finance market. Better infrastructure, new employment opportunities, and a steady supply of mid-income housing are supporting this shift. These factors are making homeownership more accessible beyond traditional metro areas.
The growing share of home loans in Tier-2 and Tier-3 cities points to a more distributed housing market. This broader demand base could improve long-term stability for India’s housing finance sector. The trend also reflects changing preferences as buyers seek more affordable options outside major metros.
