India's next home-loan growth wave is set to emerge from Tier 2 and Tier 3 cities, even as digital lending reshapes the housing-finance landscape — with 92% of housing-finance applications processed digitally by 2024, according to a report released on 2 September by advisory firm SGA PR. The findings signal a structural shift in where and how Indians are borrowing to buy homes.

Smaller Cities Driving Volume

Tier 2 and Tier 3 cities now account for 64% of total home-loan volumes in India, with those volumes expanding 81% year-on-year in 2025. This comes amid rising incomes, accelerating infrastructure development, and an affordability crunch in major metros that is pushing both buyers and lenders toward smaller urban centres.

Nearly 42% of housing-finance firms now report that the majority of their enquiries originate digitally — a dramatic change from 2020, when only 60% of applications were processed through digital channels.

Digital Penetration Still Has Room to Grow

Despite the rapid uptake, the report notes that housing finance remains less digitised than unsecured lending. Physical verification, field operations, and manual underwriting processes continue to play a significant role, particularly in smaller markets where borrower profiles are more complex.

Rahul Jain, Chief Executive Officer of SGA PR, said technology can help lenders address friction in discovery, documentation, and underwriting as demand moves beyond the metros. 'The next phase will require a combination of digital infrastructure and the trust and local understanding that remain important in housing finance,' Jain said.

First-Time and Self-Employed Borrowers in Focus

Amit Prakash Singh, Co-Founder and Chief Business Officer of Urban Money, noted that digital tools are making it easier to assess eligibility, match borrowers with lenders, and streamline documentation. 'As housing demand expands across smaller cities and reaches more first-time and self-employed borrowers, the real opportunity lies in combining digital infrastructure with strong advisory and on-ground support to make formal credit more accessible and transparent,' Singh said.

What the Next Phase Looks Like

The report forecasts the next phase of housing finance to be shaped by affordable housing demand, smaller-city growth, digital sourcing, Account Aggregator-led underwriting, and increasingly data-driven credit assessment. Digital sourcing is projected to cross 70% by 2030, while AI-driven underwriting is expected to become progressively standard across the lending journey.

This comes amid broader urbanisation trends and government-backed affordable housing schemes that have collectively expanded the formal credit base in non-metro India. With lenders now competing for a borrower base that is younger, more mobile, and increasingly comfortable with digital interfaces, the race to serve smaller cities is fast becoming the defining contest in Indian housing finance.