Year-ender 2024: Home loan borrowers burdened with high interest rates can expect relief in 2025

In the last monetary policy meet on December 6, it kept the repo rate unchanged at 6.50 per cent for the 11th consecutive time.

The Indian home loan segment has experienced some turmoil in recent years, due to rising interest rates, escalating property prices, and shifting economic dynamics. These factors have created significant challenges for homebuyers, particularly in the affordable housing segment.

However, there is hope for a more favourable environment in 2025. Expected changes in interest rates, continued government support for affordable housing, and technological advancements in the loan process could provide much-needed relief to home loan borrowers in the New Year.

The Reserve Bank of India (RBI) raised interest rates by 250 basis points cumulatively between May 2022 and February 2023. This had an adverse impact on home loan borrowers because those who had taken loans saw a substantial hike in their EMIs which put a strain on their finances. Many borrowers had to extend their home loan tenure to keep the EMIs manageable.

The RBI paused the rate hike cycle in April 2023. In the last Monetary Policy Committee meeting on December 6, it kept the repo rate unchanged at 6.50 percent for the 11th consecutive time.

Potential interest rate cut

While inflation concerns may persist, there are signals that the RBI may potentially reduce the policy rates.  In fact, some experts are predicting a 50-75 basis points reduction in repo rates in 2025, if food inflation moderates. This would directly translate into lower home loan interest rates, offering much-needed relief to borrowers who have faced the impact of rising EMIs in recent years.

If such rate cuts were to be announced, borrowers can expect some respite in their EMI payments and potentially better borrowing terms in the near future.

High property prices

While interest rates rose, housing prices in India remained stubbornly high, especially in metropolitan cities like Mumbai, Delhi, Bengaluru, and Chennai. In fact, according to a report by ANAROCK property consultants, average residential prices across the top seven cities registered double-digit growth of 23 percent in Q3 2024 compared to Q3 2023.

The escalation in property prices, driven by inflationary pressures in raw materials like steel and cement, further strained homebuyers, particularly in the middle-income and lower-income segments. Many first-time buyers found it increasingly difficult to save for down payments, especially with high property prices and rising loan costs.

This also led to a slowdown in the housing market, especially for premium and luxury properties, where demand started to plateau. In fact, according to ANAROCK research, India's real estate market witnessed an eleven per cent decline in housing sales during the third quarter of 2024.

However, 2025 is likely to be difference on several counts. For one, there is cautious optimism regarding interest rates for borrowers.

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Affordable housing

The Union Budget 2024-25 allocated a significant Rs 10 lakh crore to the Pradhan Mantri Awas Yojana (PMAY) Urban 2.0, aiming to provide housing to 100 lakh urban households. This substantial investment is expected to drive significant growth in the affordable housing sector in 2025.

Government initiatives like interest subsidies and tax benefits are likely to boost home ownership, leading to increased demand for home loans. This, in turn, could prompt financial institutions to offer competitive interest rates and flexible repayment options.

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Digital transformation in loan processes

The role of technology is set to grow further, with many lenders shifting to digital platforms for loan application, processing, and management. The use of artificial intelligence (AI) for credit assessments and digital document submission will streamline the loan process, making it faster and more transparent for borrowers.

Borrowers will find it easier to access loan products, compare offers, and apply online, reducing paperwork and wait times. Fintech platforms are likely to play a bigger role, offering competitive rates and terms that appeal to tech-savvy borrowers.

Going ahead, stabilising interest rates, coupled with continued government focus on affordable housing, will provide relief to borrowers who have been struggling under the financial burden of rising loan costs. The year 2025 presents an opportunity for borrowers to benefit from lower interest rates, government support, and a more stable housing market.

The writer is CEO & Co-Founder, BASIC Home Loan 

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.