Interest rate cuts lift housing affordability in Mumbai, Delhi NCR sees a marginal dip: Report
The affordability of home purchases for homebuyers has improved in 2025, as interest rates have dropped significantly since the end of 2024, according to Knight Frank India’s Affordability Index report. Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed by Pune and Kolkata at 22%, according to the report.
The report said that the affordability in the Mumbai real estate market has improved significantly, with the EMI-to-income ratio declining to 47%. This marks the first time in the city’s history that affordability has fallen below the 50% threshold, signalling a new and more sustainable level of housing affordability. On the other hand, affordability has dropped marginally in the Delhi NCR region, the report said.
How is affordability measured?
According to Knight Frank India, its Affordability Index indicates the proportion of income that a household requires to fund the monthly instalment (EMI) of a housing unit in a particular city.
A Knight Frank Affordability Index level of 40% for a city implies that, on average, households in that city need to spend 40% of their income to fund the EMI of a housing loan for that unit.
An EMI/Income ratio of over 50% is considered unaffordable, as it is the limit beyond which banks rarely underwrite a mortgage, the report said.
Also Read: Housing affordability: Ahmedabad, Pune, and Kolkata lead as Mumbai sees improvement
Mumbai breaches affordability threshold for the first time
According to the report, the affordability level in Mumbai has improved significantly since the pandemic and has crossed over the affordability threshold of 50% in 2024.
In contrast, the 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, the report said.
Home affordability in the Bengaluru and Hyderabad markets remained unchanged, as both demand and weighted average values improved over the year. Here, too, affordability is well below the threshold, keeping these markets buyer-friendly, according to the report.
Also Read: Mumbai’s housing affordability is at a 15-year high, but homeownership still remains out of reach for most buyers
Affordability strengthened during the pandemic
According to the report, the proportion of household income spent on EMIs showed a consistent improvement across the eight 1 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 its decade-low levels. However, in response to elevated inflation, the RBI increased the repo rate by 250 basis points over a nine-month period beginning in May 2022, which led 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 bps since February 2025, resulting in a further improvement in affordability across most housing markets, the report said.
The report stated that the COVID-19 pandemic served as a catalyst for the residential real estate market, triggering a recalibration of both property prices and lending rates that significantly boosted demand. This residential market momentum has persisted, supported by strong economic factors such as effective inflation control and continued economic growth, which has improved home affordability and catapulted residential sales.
The report added that, by 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.
Also Read: RBI repo rate cut could lower home loan costs but is it the right time to buy a house?
“Supportive affordability is essential for sustaining homebuyer demand and sales momentum, which in turn acts as a key economic driver for the country. Over the past few years, both weighted average prices and income levels have risen, even as home loan interest rates have followed the trajectory of the repo rate, which has declined by 125 basis points this year. Among these three critical parameters influencing affordability, income levels have improved at a faster pace, and in tandem with the reducing interest rates, have strengthened overall home affordability,” said Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India.
“As income levels rise and economic growth gains traction, end-users’ financial confidence is significantly reinforced, encouraging them to undertake longer-term financial commitments towards asset creation. Given the RBI’s robust GDP growth estimate of 7.3% for FY2026 and a benign interest rate environment, affordability levels are expected to remain supportive of homebuyer demand in 2026,” Baijal said.
