Tier-2 and Tier-3 cities drive India’s home loan growth

By Vriti Gothi

India’s home loan market is undergoing a geographic rebalancing, with smaller cities accounting for a growing share of mortgage demand as affordability pressures persist in major metros, according to new data from Fintech-led mortgage platform Urban Money.

Findings from the Urban Money Homebuyers Credit Pulse Report show that Tier-2 and Tier-3 cities contributed 64% of total home loan volumes in 2025, up from 60% a year earlier. Home loan volumes in these markets grew 81% year-on-year, significantly outpacing the 52% growth recorded in Tier-1 cities, signalling a structurally broader housing finance cycle.

The shift matters for lenders and mortgage-focused FinTechs as it underscores the increasing importance of distributed, volume-led growth over metro-centric, high-ticket lending. With homeownership demand spreading across emerging urban centres, digital origination, data-driven underwriting and partner-led distribution models are becoming central to scaling credit access beyond India’s largest cities.

Urban Money’s data indicates that improving infrastructure connectivity, expansion of employment hubs, and sustained availability of mid-income housing are driving borrowing activity in Tier-2 and Tier-3 locations such as Chandigarh, Jaipur, Surat, Madurai and Palwal. The consistency of growth across these markets points to deeper penetration of formal housing finance and rising participation from first-time and mid-income borrowers.

In contrast, large urban centres are increasingly showing participation-led growth rather than sharp premiumisation. Delhi and Ahmedabad posted year-on-year home loan volume growth of 61% and 44%, respectively, while average ticket sizes rose by a measured 12%. Noida followed a similar pattern, with balanced growth across volumes and loan sizes, reinforcing its position as an affordability-led extension market rather than a speculative housing destination.

“India’s housing finance market is becoming more broad-based and structurally balanced,” said Amit Prakash, Co-Founder and Chief Business Officer at Urban Money. “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.”

Premiumisation, the report notes, remains concentrated in select metros. Mumbai, Gurugram and Hyderabad recorded close to 20% growth in average loan ticket sizes. While Hyderabad and Gurugram also saw strong volume growth, Mumbai’s loan volumes were largely flat, indicating value-led borrowing by affluent upgraders rather than broader-based demand.

Peripheral and affordability-led corridors continue to support overall momentum. Navi Mumbai recorded a 55% increase in loan volumes, while the Noida–Greater Noida region saw a 42% rise in total loan value, reflecting growing preference for infrastructure-supported micro-markets. Mature housing markets such as Pune and Kolkata delivered steady, low-volatility growth, with single-digit increases in both volumes and ticket sizes.

For the FinTech ecosystem, the data highlights a shift in opportunity from premium, metro-heavy lending to scalable, technology-enabled mortgage distribution across a wider urban base—reshaping how lenders, platforms and partners approach growth in India’s housing finance market.