Union Budget 2026: A chance to revamp housing finance, boost affordability

Budget expectations from home loan borrowers

• Experts urge Budget 2026 to boost housing loan tax benefits and revive PMAY-CLSS
• Advocates urge no-cost loan portability, milestone-linked disbursements for buyers
• Proposed standardized loan disclosures to boost transparency and buyer confidence

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As India eyes sustainable urban growth, the Union Budget 2026 presents a pivotal opportunity to address longstanding challenges in housing finance. With outstanding housing loans surpassing Rs 27 lakh crore as per RBI data, experts from the realty and finance sectors are advocating targeted reforms to boost affordability, transparency, and buyer confidence.

These changes could ease the path to homeownership amid rising property prices and economic pressures.

Boosting tax deductions and subsidies for mid-income buyers

Atul Monga, CEO and Co-Founder of BASIC Home Loan, highlights elevating tax incentives to counter affordability erosion. He suggests raising the home loan interest deduction cap under Section 24(b) from Rs 2 lakh to Rs 5 lakh, along with a higher and separate limit for principal repayment under Section 80C so that the home loan principal does not compete with other Section 80C instruments.

This would directly reduce the effective cost of borrowing and improve affordability for mid-income buyers.

"These reforms are necessary because despite steady demand, affordability has been slipping away," said Monga. While in many markets the property prices have increased nearly 30 percent in recent years, tax benefits on home loans remain unchanged, reducing their overall impact. EMIs often eat up 40 percent or more of household income.

Enhanced deductions could slash annual outflows by Rs 40,000 to Rs 75,000 for borrowers, easing early-year pressures. Monga also urges reviving the Pradhan Mantri Awas Yojana's Credit Linked Subsidy Scheme (PMAY-CLSS) for mid-income groups, potentially cutting effective rates by 1-2 percent and saving Rs 3 to Rs 5 lakh over the loan tenure. "Together, these measures will improve loan eligibility, lower financial burden and make the path to home ownership much easier," he adds.

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Streamlining loan portability for cost savings

Sandeep Mangla, Managing Director of Forteasia Realty, said, “Homebuyers expect a housing loan reform to be a simplified and no cost home loan portability legislation to allow borrowers to improve terms of service and interest rates with lenders easily and without cost.”

India's outstanding housing loans have surged to over Rs 27 lakh crore, indicating a significant and long-term borrower base. However, high interest rates are making it tough for homebuyers to refinance their existing loans, and the complexities of balance transfers and refinancing are overwhelming the system, ultimately reducing competition among lenders.

Mangla proposes no-cost digital balance transfers with accelerated processing and moderated fees. This would empower the vast borrower base to switch seamlessly for better rates. Homebuyers would significantly save interest payments and improve their flexibility in managing the loans with less financial control of the loan.

Tying disbursements to construction milestones

Project delays remain a scourge, forcing buyers into dual payments of rent and EMIs. Anurag Goel, Director at Goel Ganga Developments, recommends regulations linking loan disbursements to verified construction stages, leveraging RERA-mandated escrow accounts.

Data from the Government and the NHB show that a large percentage of housing loans are used for home purchases during construction, but there are still continuous project delays and delays in home completion. “As it currently stands, a number of buyers have already started to pay EMIs, even with the possession of the home still a long way off, which causes the dual financial burden of paying rent and paying the loan,” said Goel.

Goel suggests that Budget 2026 should be the first to incorporate more detailed policies that ensure the disbursement of loans is in line with construction activity verified by escrow accounts, which are already in use with RERA. This would target a structural flaw in the housing finance system.

For buyers, it means reduced interim burdens and aligned financing with actual value delivery. "The proposed reform would strengthen the trust of homebuyers making the process of home ownership less burdensome and more transparent," said Goel.

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Mandating clear, standardized disclosures

The rapid growth in home loans, with a Rs 10 lakh crore increase over two years, raises concerns about unclear loan terms and hidden fees. To address this, Pramod Kumar Gupta, Director at Kadamshree Developers India LLP, suggests making uniform disclosures mandatory in the upcoming budget to protect home buyers.

Gupta warns that unclear loan terms could expose homebuyers to risks, making the market more vulnerable. He suggests standardized communication would create a more stable credit system, boosting buyer confidence and reducing stress on the system. This clarity would ultimately make funds more accessible, stabilizing the sector for long-term growth.

These reforms, if enacted, could inject vitality into housing finance, aligning it with India's homeownership dreams. By prioritizing buyer-centric policies, Budget 2026 might not just reform loans but redefine equitable urban living.