Home loan rate surge impact: Households under pressure; Ahmedabad most affordable, says report

Knight Frank India reported that the rise in home loan interest rates had impacted residential property affordability in all eight major cities in the first half of this year.

On Wednesday (August 16), real estate consultant Knight Frank India released its 'Affordability Index' for the top eight cities for the first six months of 2023 calendar year.

The index tracks the EMI (Equated Monthly Instalment)-to-income ratio for an average household.

It indicates the proportion of income that a household requires, to fund the EMI of a housing unit in a particular city.

The index showed that higher home loan rates have reduced affordability across all markets in 2023.

Ahmedabad is the most affordable housing market amongst the top eight cities, with a ratio of 23 percent followed by Pune and Kolkata at 26 percent each; Bengaluru and Chennai at 28 percent each; Delhi-NCR at 30 percent; Hyderabad 31 percent; and Mumbai 55 percent.

A Knight Frank Affordability index level of 40 per cent for a city implies that on an average, households in that city need to spend 40 per cent of their income to fund the EMI of housing loan for that unit.

An EMI/Income ratio over 50 per cent is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage, it said.

Knight Frank noted that affordability index witnessed steady improvement from 2010 to 2021 across the eight cities of India especially during the pandemic when the RBI cut repo rates to decadal lows.

"The central bank has raised the REPO rate by 250 bps since then to address growing inflation. This has impacted affordability by an average of 2.5 per cent across cities and increased the EMI load by 14.4 per cent since then," the consultant said.

(With agency inputs)