Home Loan Trends in India: Key Insights from the Last 5 Years

Over the past five years, the home loan market in India has undergone a significant transformation, driven by falling interest rates, digitization, changing buyer behavior, and evolving government policies. Whether you’re a first-time buyer or a property investor, understanding how the landscape has changed between 2020 and 2025 can help you make better financial decisions.

This article explores the major home loan trends in India from the past five years, along with insights into borrower preferences, lender strategies, policy shifts, and the outlook ahead.

1. Interest Rates Hit Record Lows Post-2020

One of the most impactful developments in the Indian home loan space was the sharp decline in interest rates after 2020.

Key Facts:

• Home loan interest rates dropped to below 7% by mid-2021

• This was the lowest in nearly two decades

• Triggered by RBI’s accommodative monetary policy and repo rate cuts

Even by 2025, most banks continue to offer rates between 8.0% to 9.5%, keeping EMI burdens relatively low for salaried buyers.

Result:
Higher affordability, larger loan sizes, and increased housing demand, especially in Tier 2 and Tier 3 cities.

2. Surge in Affordable Housing Loans

The government’s focus on “Housing for All” and schemes like PMAY (Urban and Rural) led to a boom in affordable housing finance.

Insights:

• Loans under ₹30–35 lakh saw a steady rise in disbursal

• More than 60% of PMAY-CLSS subsidies were given for affordable home loans

• EWS and LIG segments gained access to formal credit systems

Financial institutions like:

• LIC Housing Finance

• PNB Housing

• Gruh Finance
  …launched special affordable housing loan products during this period.

3. Rise of Private Lenders and NBFCs

While public sector banks held a large market share in home lending pre-2020, the last five years witnessed rapid growth of NBFCs and private banks.

Key Trends:

• HDFC, ICICI, Axis, and Kotak expanded aggressively in urban and semi-urban zones

• NBFCs like IIFL Home Finance, Indiabulls, and Aavas Financiers offered flexible terms for self-employed borrowers

• Surge in non-salaried customer base, especially in Tier 2/3 regions

Why?
NBFCs made loans more accessible by:

• Relaxing documentation

• Offering doorstep services

• Introducing digital onboarding and approvals

4. Digital Transformation & Paperless Loans

Between 2020 and 2025, digitalization reshaped the loan application process.

Then vs. Now:

Added Features:

• Video KYC

• Pre-approved loan offers via email/SMS

• Mobile apps for loan tracking and EMI payment

This shift improved loan accessibility and reduced turnaround times, especially during the pandemic years.

5. Customization of Loan Products

Lenders have increasingly started offering tailored loan options to suit specific buyer needs.

Popular Custom Products:

• Step-Up EMI Plans – lower EMI in initial years, increased later

• Pre-EMI loans – for under-construction properties

• Home loan overdraft facility – linked to savings/current accounts

• Joint home loans – encouraged for women co-ownership (with stamp duty discounts in many states)

New Segments:

• Loans for NRIs, gig workers, and freelancers

• Special loan slabs for green homes and LIG/MIG buyers

6. Home Loan Insurance Becomes Mainstream

Post-COVID, borrowers have become more aware of home loan protection plans.

Key Additions:

• Loan-linked term insurance covering the principal in case of death/disability

• EMI protection in case of job loss or temporary illness

• House property insurance mandatory in many loans (against fire, earthquake, etc.)

Banks are also partnering with insurers to offer bundled policies for a minimal extra premium.

7. Women Borrowers on the Rise

Several state governments and banks started offering incentives for women homebuyers, which led to a noticeable increase in women borrowers.

Benefits offered:

• 0.05%–0.10% interest concession

• 1%–2% lower stamp duty (in states like Maharashtra, Rajasthan, Haryana)

• Joint ownership mandatory under PMAY-U CLSS

According to reports, over 30% of new home loan borrowers in urban India are women as of 2025.

8. Shift Towards Tier 2 & 3 Cities

With remote work and infrastructure growth, there has been a migration in home-buying demand to smaller cities.

Cities witnessing loan demand growth:

• Indore, Surat, Nashik, Lucknow, Coimbatore, Nagpur, Jaipur

Result:

• Lenders expanding their semi-urban branches

• Introduction of low-ticket-size loans (₹10–20 lakh)

• Growth of plot loans and self-construction loans in peri-urban zones

9. Stronger Focus on Creditworthiness

Lenders are now putting more weight on credit scores and digital footprints rather than just income.

Key Developments:

• CIBIL score of 700+ is now essential for best rates

• Loans are graded into risk categories for pricing

• Use of alternate credit scoring for new-to-credit or informal workers

Borrowers with high scores enjoy:

• Lower interest rates

• Faster approvals

• Higher loan-to-value (LTV) ratios

10. Government Policy Support

The government played a proactive role over the last five years in supporting home buyers.

Major Policy Measures:

• PMAY-CLSS subsidies continued till 2024 for MIG

• Introduction of SWAMIH Fund for stalled projects

• RERA enforcement boosted buyer confidence

• GST cut to 1% on affordable under-construction homes

Budget 2025 Announcements:

• Additional tax deductions on home loan interest for first-time buyers

• Digitization push for property records and land titles

• Credit guarantee schemes for informal segment borrowers

Outlook for 2025 and Beyond

The Indian home loan market is set for continued growth driven by:

• Young homebuyers under 40

• Demand in Tier 2 & 3 cities

• Expansion of low-interest, high-LTV products

• Integration of AI, blockchain, and data analytics in loan processing

Conclusion

Between 2020 and 2025, India’s home loan market has evolved from a branch-dependent, paperwork-heavy process to a tech-enabled, customer-centric ecosystem. Interest rates, policy incentives, and digital tools have made home loans more accessible than ever.

Whether you’re buying your first house, upgrading to a bigger flat, or building your own home — there has never been a better time to explore home loans in India.

Useful Links:

• PMAY Portal: https://pmaymis.gov.in

• RERA Check: https://rera.gov.in

• Home Loan Calculators: Available on all major bank websites

• CIBIL Score Check: https://www.cibil.com