Kolkata: The big cities in India are gradually losing their preeminence in the home loan market. According to Urban Money Homebuyers Credit Pulse Report (YTD 2025), the Tier 2 and Tier 3 cities are accounting for a large part of the growth of the home loan market. Incidentally home loans are the most significant of retail loans which are not only secure for the banks but also have a multiplier impact on many important labour-intensive sectors such as cement, bricks, steel, electricals, home decor, consumer electronics and kitchenware.
The report has found that Tier 2 and Tier 3 cities have been responsible for about 66% of India’s total home loan volumes during the year. In terms of volume, the Tier 2 and Tier 3 cities jumped 81% year-on-year in 2025. In comparison, the Tier 1 cities have lagged behind at 52%.
Floor home loan rates in Jan 2026
Home loans are a big driver of consumption in the economy. Nowadays most homebuyers resort to home loans. In order to spur consumption the Reserve Bank of India trimmed the Repo Rate by a significant 125 basis points in 2025. The last cut of 25 basis points took place in Dec 2025. Let’s see where the home loan interest rates are in six of the top banks of the country. The point to remember is that these are the floor rates and the interest rates that the banks are going to charge an applicant on home loans depends on a few factors such as credit score, income level, past credit repayment record etc.
Axis Bank: 7.20% p.a.
Canara Bank: 7.15% p.a.
HDFC Bank: 7.20% p.a.
ICICI Bank: 7.50% p.a.
Punjab National Bank: 7.20% p.a.
State Bank of India: 7.25% p.a.
Source: Paisabazaar
The affordability question
The study has revealed that the price of real estate is rising so fast in the metro cities, that many are moving to smaller cities due to unaffordable rates in the metro cities. This is also contributing to the growth of home loans in the Tier 2 and Tier 3 cities, where the real estate prices are relatively affordable.
The study also revealed that the markets such as Delhi, Ahmedabad and Noida kept up a healthy growth but these didn’t display a sharp rise in average loan sizes. Noida witnessed a 14% rise. The survey by Urban Money also observed that first-time and mid-income buyers continue to dominate demand in these cities. The much-discussed premiumisation is confined to high-income pockets some of which was seen in Mumbai, Gurugram and Hyderabad. These recorded about 20% growth (y-o-y) in average loan ticket sizes. This was attributed to affluent buyers.
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