Tier-2, Tier-3 cities drive 64% of home loan volumes in 2025: Report

Home loan demand is moving away from core metropolitan markets, with Tier-2 and Tier-3 cities emerging as the dominant contributors to growth in 2025, a report said.

Tier-2 and Tier-3 cities recorded an 81 per cent year-on-year growth in home loan volumes in 2025, significantly higher than the 52 per cent growth seen in Tier-1 cities, fintech-led mortgage distribution platforms Urban Money said in a report.

"This sharp expansion has increased the contribution of Tier-2 and Tier-3 markets to 64 per cent of total home loan volumes in 2025, compared to 60 per cent in 2024, highlighting a structurally broader and more distributed housing finance cycle," it said.

The findings indicate that housing demand growth is no longer concentrated within a few large metros or premium price segments, it said.

Instead, it said, improving infrastructure connectivity, expansion of employment hubs and sustained availability of mid-income housing are driving stronger homeownership demand across emerging cities, it said.

As affordability pressures persist in core metros, a growing share of aspirational homebuyers is entering the market through smaller cities and peripheral urban corridors, it said.

The report highlighted strong borrower activity across several Tier-2 and Tier-3 markets, including Chandigarh, Jaipur, Surat, Madurai and Palwal, which recorded significant increases in loan creation during the year.

The scale and consistency of growth across these cities reflect deeper penetration of formal housing finance beyond India's largest urban centres, it said.

Urban Money co-founder Amit Prakash said, "India's housing finance market is becoming more broad-based and structurally balanced. The current growth cycle is being driven by steady expansion in first-time and mid-income homeownership across a wider set of cities.

While premium borrowing remains limited to a few high-income markets, the larger momentum is clearly affordability-led, supported by infrastructure development and rising aspirations beyond core city centres, he said, adding that this distributed demand base strengthens the long-term stability of the housing finance ecosystem.

Although emerging cities are driving volume growth, premiumisation remains concentrated in a few high-income markets. Mumbai, Gurugram and Hyderabad recorded close to 20 per cent year-on-year growth in average loan ticket sizes, it said.