Interest Rate Cuts Boost Mumbai Affordability; NCR Sees Slight Dip

India’s housing market has entered 2025 on a far more stable footing, supported by interest rate cuts that have eased the financial burden on homebuyers across most major cities. According to Knight Frank India’s latest Affordability Index, falling borrowing costs and steady income growth have combined to improve housing affordability, particularly in Mumbai, where a historic threshold has been crossed, while Delhi NCR witnessed a marginal softening.

The findings underline how interest rate cuts are playing a decisive role in sustaining residential demand at a time when property prices remain firm in many markets.

Understanding Housing Affordability and the EMI-to-Income Ratio

Knight Frank’s Affordability Index measures the proportion of household income required to service a home loan EMI in a given city. In simple terms, it shows how manageable a housing purchase is for an average household.

An EMI-to-income ratio of:

• Below 40% indicates strong affordability
• 40–50% reflects moderate affordability
• Above 50% is considered financially stressful

Banks typically avoid underwriting mortgages once this ratio crosses the 50% mark. Against this backdrop, the impact of interest rate cuts becomes critical, as lower rates directly reduce monthly EMIs even when home prices rise.

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Mumbai Real Estate: A Historic Improvement in Affordability

Mumbai has long been regarded as one of the least affordable housing markets globally. However, 2025 marks a turning point.

Knight Frank’s report shows that Mumbai’s EMI-to-income ratio has declined to 47%, the first time the city has moved below the 50% affordability threshold. This improvement is being attributed largely to sustained interest rate cuts, combined with gradual income growth and more calibrated price increases.

The shift signals a structurally healthier market, where end-user demand is no longer stretched beyond financial comfort levels. For homebuyers who were previously priced out or hesitant, Mumbai is now comparatively more accessible than it has been in decades.

Delhi NCR: Marginal Dip Despite Staying Within Safe Limits

In contrast to Mumbai, Delhi NCR was the only major housing market to register a slight deterioration in affordability during 2025.

The report attributes this to:

• Rising weighted average prices
• Strong demand in pthe remium and luxury housing segments
• Increased transaction activity in high-ticket projects

While interest rate cuts helped cushion the impact, price appreciation outpaced affordability gains in NCR. That said, the EMI-to-income ratio in the region remains comfortably below the 50% stress level, indicating that the market is still fundamentally buyer-friendly.

Why Interest Rate Cuts Are Central to the Affordability Story

The recent affordability gains cannot be viewed in isolation from monetary policy. Since February 2025, the Reserve Bank of India has reduced the repo rate by 125 basis points, reversing part of the tightening cycle initiated in 2022.

These interest rate cuts have:

• Lowered home loan EMIs
• Improved loan eligibility for buyers
• Encouraged fence-sitters to re-enter the market
• Supported sales momentum even at higher price points

For salaried households, even a modest reduction in interest rates translates into meaningful monthly savings over long loan tenures.

City-wise Snapshot: Where Affordability Is Strongest

Among India’s top eight housing markets, affordability remains strongest in mid-priced cities.

• Ahmedabad emerged as the most affordable market, with an EMI-to-income ratio of 18%
• Pune and Kolkata followed closely at 22% each

These cities have benefited disproportionately from interest rate cuts, as relatively lower property prices amplify the impact of cheaper financing. As a result, they continue to attract first-time homebuyers and mid-income households.

Bengaluru and Hyderabad: Stability Holds the Fort

Bengaluru and Hyderabad reported no significant change in affordability levels during 2025. In both cities, price growth and income increases moved largely in tandem, keeping EMI burdens stable.

Despite strong demand for residential projects in these tech-driven markets, affordability remains well below stress thresholds. Here too, interest rate cuts have ensured that rising demand has not translated into financial strain for buyers.

From Pandemic to Post-2025: A Decade of Improvement

The Affordability Index highlights a longer-term trend that predates recent policy changes. Between 2010 and 2021, housing affordability improved consistently across major Indian cities.

During the pandemic, emergency rate cuts by the RBI pushed borrowing costs to decade lows, accelerating residential demand. However, the sharp rate hikes between May 2022 and early 2023 temporarily reversed this trend.

Since then, policy stability followed by fresh interest rate cuts has restored affordability, creating a more balanced housing cycle rather than a speculative surge.

RBI Policy, Income Growth, and Housing Demand

Affordability is shaped by three variables:

1. Property prices
2. Household income
3. Home loan interest rates

Knight Frank’s analysis shows that while property prices and incomes have both risen, income growth has been relatively faster in recent years. When paired with interest rate cuts, this has materially strengthened purchasing power.

With the RBI projecting GDP growth of over 7% for FY2026, employment stability and wage growth are expected to remain supportive, reinforcing housing demand.

Expert View: Why Affordability Is the Market’s Backbone

Shishir Baijal, Chairman and Managing Director of Knight Frank India, noted that supportive affordability is critical for sustaining residential momentum.

According to him, rising incomes and declining borrowing costs have reinforced buyer confidence, encouraging long-term financial commitments toward home ownership. He added that the current cycle of interest rate cuts, combined with economic resilience, is likely to keep affordability favourable into 2026.

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What This Means for Homebuyers and Developers

For homebuyers:

• Lower EMIs improve loan eligibility
• Reduced financial stress supports upgrade purchases
• Stable affordability encourages quicker buying decisions

For developers:

• End-user-driven demand remains intact
• Sales visibility improves without excessive discounting
• Project launches can be better aligned with real demand

The continued effect of interest rate cuts is expected to anchor housing demand rather than inflate speculative bubbles.

Conclusion

The 2025 affordability landscape reflects a maturing housing market shaped by prudent monetary policy and steady income growth. While regional variations persist, interest rate cuts have clearly emerged as the strongest tailwind for the residential real estate market.

Mumbai’s breakthrough moment underscores how policy support can recalibrate even the most expensive markets, while NCR’s mild dip highlights the limits of affordability in premium-driven cycles. As long as borrowing costs remain benign, India’s housing market appears well-positioned for sustainable growth rather than overheating.