Smaller cities drive 64% of home loans as volumes surge 81%: Report | Personal Finance

India’s next major credit growth could come from smaller cities, which account for around 64 per cent of home-loan volumes. Volumes in these cities increased 81 per cent year-on-year in 2025, said a report.

 

The way Indians approach housing finance is changing. Nearly 92 per cent of housing-finance applications were processed digitally in 2024, up from around 60 per cent in 2020, according to Housing Finance in India – The Silent Giant of Retail Credit, a report by SGA PR.

 

The combination of geographical expansion and digital lending could reshape the housing finance market over the next few years. However, unlike unsecured loans, home loans cannot be made entirely digital because property verification and field-level checks remain important.

  

Smaller cities take the lead

The 64 per cent share of home-loan volumes from Tier-II and Tier-III cities highlights how housing demand is moving beyond India’s biggest urban centres.

 

According to the report, volumes in these markets grew 81 per cent in 2025, supported by several factors. Rising incomes, infrastructure development, urbanisation and employment creation are increasing the ability and willingness of households in smaller cities to purchase homes.

 

Affordability is another factor. The sharp rise in property prices in several metros has widened the gap between household incomes and the cost of buying a home. Smaller cities and towns can offer comparatively affordable housing, making them increasingly relevant to first-time buyers, said the report.

 

For lenders, this creates a large opportunity. But it also brings a different borrower profile, including customers who may be self-employed or have less conventional income documentation.

 

That makes credit assessment more complicated than simply checking a salaried borrower’s monthly payslip.

 

Digital applications rise from 60 per cent to 92 per cent

 

Technology is becoming a bigger part of this process.

 

The proportion of housing-finance applications processed digitally increased from around 60 per cent in 2020 to nearly 92 per cent in 2024, according to data cited by the report.

 

The change is also visible before an application is formally submitted. Around 42 per cent of housing finance firms now report that the majority of their enquiries originate through digital channels.

 

For borrowers, this means the home-loan journey can increasingly begin online. A customer can discover lenders, check eligibility, submit documents and receive assistance without making repeated visits to branches, said the report.

 

For lenders, digital sourcing can expand their reach beyond locations where they have a large physical branch network.

 

However, the 92 per cent digital-processing figure should not be interpreted as meaning that 92 per cent of the entire home-loan journey happens without human intervention.

 

Housing finance remains more complicated than unsecured lending. A property has to be evaluated, documents need to be checked and, in many cases, physical verification is required before a lender is comfortable extending a large, long-term loan.

 

Fintechs are entering mortgage distribution

The digital shift is also creating opportunities in mortgage distribution.

 

Platforms such as Urban Money, Paisabazaar and BankBazaar are helping connect borrowers with lenders through digital journeys. These platforms can support eligibility checks, lender matching and documentation, potentially reducing the effort involved in approaching multiple lenders.

 

This is particularly relevant as housing demand expands into smaller cities.

 

A borrower in a smaller city may not have the same access to multiple lenders or specialised financial advice as someone in a large metropolitan market. Digital distribution can reduce some of that geographical disadvantage.

 

But technology alone cannot remove every hurdle.

 

Rahul Jain, chief executive officer , SGA PR, said the opportunity was no longer simply about expanding loan books but about making formal housing credit accessible to a broader set of borrowers. As demand moves beyond metros, he said, technology could reduce friction around discovery, documentation and underwriting, while trust and local understanding would continue to matter.

 

Amit Prakash Singh, cofounder and chief business officer, Urban Money, said the housing finance ecosystem was moving from a fragmented, intermediary-led model towards a more connected and technology-enabled one. He said digital tools could simplify eligibility assessment, lender matching and documentation, but advisory and on-ground support would remain important for first-time and self-employed borrowers.

 

What could change by 2030?

The report expects affordable housing, smaller-city demand and digital sourcing to remain important growth drivers.

 

It estimates that digital sourcing could cross 70 per cent by 2030. That would represent another significant shift from the roughly 60 per cent level recorded in 2020, although the market is already at nearly 92 per cent for digital processing of applications as of 2024.

 

The distinction between digital processing and digital sourcing is important. Processing refers to how an application is handled after it enters the system, while sourcing concerns how borrowers discover and approach lenders in the first place.

 

The next stage could also involve greater use of Account Aggregator-led underwriting, which can allow lenders to access consent-based financial information, and more data-driven credit assessment.

 

The report expects AI-driven underwriting to become increasingly standard across the lending journey.

 

For borrowers, this could mean faster decisions and more personalised lender offers. But it will also make it important to understand what data is being used to assess their creditworthiness and whether the final loan terms are competitive.

 

The larger trend is therefore not a simple move from branches to apps. India’s housing finance market is moving towards a hybrid model: digital tools for discovery, documentation and credit assessment, combined with human intervention for property verification, complex income profiles and local market knowledge.

 

As 64 per cent of home-loan volumes are already coming from Tier-II and Tier-III cities, the next big housing-credit opportunity may increasingly be found outside the traditional metro markets.