Tier-2, Tier-3 cities drive 81% home loan growth, 64% of volumes: Report

First-time and mid-income buyers fuel home loan growth across smaller cities

India’s home loan growth story is no longer centred around the biggest metros. Smaller cities are now shaping the housing finance market, driven by first-time buyers and mid-income households seeking affordability beyond Tier-1 limits.

 

According to the Urban Money Homebuyers Credit Pulse Report (YTD 2025), Tier-II and Tier-III cities accounted for nearly two-thirds of India’s total home loan volumes during the year, underlining a decisive shift in borrowing patterns across the country.

 

Smaller cities lead volume growth

The report shows that home loan volumes in Tier-II and Tier-III cities grew 81 per cent year-on-year in 2025, compared with 52 per cent growth in Tier-1 cities. As a result, these emerging markets contributed 64 per cent of total home loan volumes, up from 60 per cent a year earlier.  

 

This expansion reflects a broader base of homebuyers entering the market outside major metros, supported by better infrastructure, expanding employment hubs, and improved access to organised housing finance, according to Urban Money.

 

Affordability pressures in large cities are also pushing buyers towards smaller urban centres, where property prices and loan ticket sizes remain relatively manageable.

 

Urban Money

Metro growth driven by participation, not premiumisation

Large urban markets such as Delhi, Ahmedabad and Noida continued to record healthy growth, but without a sharp rise in average loan sizes. Delhi and Ahmedabad posted 61 per cent and 44 per cent growth in loan volumes, respectively, while Noida saw a 14 per cent increase.  

Average loan ticket sizes in these markets rose by around 12 per cent, suggesting that growth is being driven by wider borrower participation rather than high-value purchases. Urban Money noted that first-time and mid-income homebuyers continue to dominate demand in these cities.    

Urban Money

Premium borrowing remains concentrated 

While overall growth is broad-based, premiumisation remains limited to a few high-income markets. Mumbai, Gurugram and Hyderabad recorded nearly 20 per cent year-on-year growth in average loan ticket sizes, driven largely by affluent upgraders. 

In Mumbai, loan volumes remained stable even as ticket sizes rose, indicating value-led growth rather than an increase in the number of borrowers. Hyderabad and Gurugram, however, saw both higher loan sizes and stronger volumes.

 

What this means for homebuyers 

The report highlights a structurally balanced housing finance cycle, with growth spreading across cities and income segments. Key takeaways include:

 

• Tier-II and Tier-III cities are now the main engines of home loan growth
• First-time and mid-income buyers are driving volumes across markets
• Premium home loans remain concentrated in select metros
• Peripheral and affordable corridors continue to attract demand

 

Urban Money said the distributed nature of demand strengthens the long-term stability of India’s housing finance ecosystem, as growth is no longer dependent on a handful of large urban centres.

 

As borrowing activity deepens across smaller cities, lenders and developers may increasingly tailor products and supply to meet the needs of India’s next wave of homebuyers.