Tier-2 and Tier-3 Cities Drive Home Loan Boom in 2025

In 2025, Tier-2 and Tier-3 cities exhibited an 81% increase in home loan volumes, outpacing Tier-1 cities' growth. Factors such as infrastructure development and mid-income housing availability have shifted demand to smaller cities, reflecting a more distributed housing finance market in India.

A new report highlights a shift in home loan demand from metropolitan areas to Tier-2 and Tier-3 cities, making them the dominant growth contributors in 2025. According to findings by fintech-led mortgage platform Urban Money, these smaller cities experienced an impressive 81% year-on-year increase in home loan volumes, significantly outstripping the 52% growth recorded in Tier-1 cities.

This expansion has led to Tier-2 and Tier-3 markets accounting for 64% of total home loan volumes, rising from 60% in 2024. The report emphasizes that housing demand growth is no longer restricted to major metros or premium segments. Rather, improvements in infrastructure, blossoming employment hubs, and availability of mid-income housing drive this trend, drawing aspirational buyers to emerging cities.

In cities like Chandigarh, Jaipur, Surat, Madurai, and Palwal, significant growth in borrowing activity illustrates the deepening penetration of formal housing finance beyond major urban centers. Urban Money's co-founder Amit Prakash notes that while premium borrowing remains limited to high-income areas, the larger affordability-led momentum is bolstered by infrastructure advancements and emerging aspirations, enhancing the stability of the housing finance ecosystem.

(With inputs from agencies.)