Shift to small cities, digital applications: Tier 2 and Tier 3 cities account for 64% of home-loan volumes: Report

Smaller cities are set to drive India's next home loan growth wave, amid increased number of digital lending applications, according to a report by SGA PR titled ‘Housing Finance in India – The Silent Giant of Retail Credit’.

India’s housing finance market is entering a structural shift, with growth moving beyond metros amid rising demand from smaller cities. Technology emerging as a “critical layer” through increasing digital adoption and emergence of tech-led mortgage distribution, the study added. It drew on industry reports, market data, company disclosures and other publicly available sources.

“Housing finance is moving into an interesting phase. The opportunity is no longer simply about growing the loan book; it is about making formal housing credit accessible to a much broader set of borrowers,” Rahul Jain, CEO of SGA PR, said.

Shift to small cities, online queries, digital applications

• Geographically, Tier 2 and Tier 3 cities accounted for 64% of the home-loan volumes, up 81% year-on-year (YoY) in 2025.
• “Rising incomes, infrastructure development, urbanisation, employment creation and the affordability gap in major metros are contributing to the growing importance of smaller cities and towns in India’s housing demand,” it stated.
• The study found that 92% of housing finance applications were processed digitally in 2024, compared to 60% in 2020.
• The report however also highlighted that housing finance remains less digitised than unsecured lending, with physical verification, field operations and manual processes continuing to play an important role.

• Thus, while digital processing has expanded sharply, physical verification and manual intervention remain part of the home loan journey.
• Further, 42% of housing finance firms now see the majority of enquiries coming digitally.
• It noted that mortgage distribution is becoming a fintech opportunity, where platforms such as BankBazaar, Paisabazaar and Urban Money have an expanded role to play. They provide customers with automated eligibility assessment and lender matching, it added.

What's in store for the future?

Jain stated that as demand moves beyond the metros, technology can help lenders address some of the friction around discovery, documentation and underwriting. “The next phase will require a combination of digital infrastructure and the trust and local understanding that remain important in housing finance,” he added.

Looking ahead, the report expects the next phase of housing finance to be shaped by affordable housing, smaller-city demand, digital sourcing, Account Aggregator-led underwriting and increasingly data-driven credit assessment.

By 2030, digital sourcing could cross 70%, while AI-driven underwriting could become increasingly standard across the lending journey, it added.

3/20/30/40 rule to avoid financial strain for home loan

A rule like 3/20/30/40 can be useful and provides indicative framework for planning repayments and debt management. It is a simple yet powerful framework with four key guidelines for homebuying. Take a look:

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