Home affordability improves after interest rate cut: Knight Frank

Bengaluru: Amidst reports of soaring prices deterring home buyers across India, a new report points to increasing affordability in house purchases in the January to June 24, 2025, period. This is a consequence of RBI’s repo rate cut during the period, expected to sustain these affordability levels in the near term.

As per the index by Knight Frank out on Tuesday, Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed by Pune at 22%, and Kolkata at 23%.

The affordability index indicates the proportion or percentage of income that a household requires to fund the equated monthly installment (EMI) of a housing unit in a particular city.

Mumbai was the least affordable city with an affordability level of 48%. However, it is noteworthy that the city has fallen below 50% for the first time since 2010.

The Indian economy’s relatively favourable economic growth despite global volatility has supported income growth and enabled lower interest rates which have in turn helped improve affordability despite the increase in residential prices, pointed out the report.

In fact, affordability levels are now at their best since the pandemic and are significantly better than the levels seen at the end of 2024. Knight Frank’s index witnessed steady improvement from 2010 to 2021 across the top eight cities. Starting May 2022 when the RBI raised the repo rate, there had been stress on affordability levels.

This is true for all cities except for the National Capital Region (NCR), which was the only one to witness an increase. It has reached 28% for the period under review, from 27% in 2024. This can be attributed to the steep increase in residential prices which have eclipsed the impact of the interest rate cuts in NCR.

This makes it the third least affordable city, after Mumbai and Hyderabad at 30%. Bengaluru trails closely behind at 27%, the same ratio it was at the previous year.