TO stimulate home-buying interest, Hongkong Bank and Hang Seng Bank have relaxed their mortgage policies by offering a longer pay-back period and cheaper interest rate charges on luxury flats. Only three weeks after its sister bank, Hang Seng Bank, decided to extend the repayment period from the age-old limit of 20 years to 25 years, Hongkong Bank will tread the same path on Monday. The longer repayment period will only apply to properties below 10 years. In addition, the higher mortgage rates levied on luxury flats priced above $5 million, initiated by the two banks in February last year, will revert to the normal rate. Instead of charging 2.25 percentage points over the best lending rate, nine per cent now, the premium will come down to 1.75 points. These measures marked the end of almost all the tightening restrictions put in place jointly by these two mortgage lenders last year when property prices were soaring. Earlier this year, Hongkong Bank changed its lending policy on the luxury market which used to have lower than 70 per cent loan-to-value ratio. The $5 million watershed defining what was luxurious was changed from referring to the price of the property to the loan amount sought, effectively increasing the loan-to-value ratio for those flats. In February, Hang Seng Bank loosened its grip on luxury residential properties, raising the 50 per cent loan-to-value ratio to 70 per cent. The two banks are responding to the property market which had gone through a period of downward adjustment ranging from 15 per cent to 20 per cent and is showing signs of renewed vigour. An equally compelling reason for initiating the changes is the force of competition. Not only have more banks entered the mortgage market at a time when the big banks were tightening the screws, the newcomers have come up with attractive lending terms. Buyers are given longer repayment periods, lower interest charges on the first year and more lenient treatment on older properties. Whatever the reasons, the news of relaxation would stimulate buyers' appetite. An executive director of Nomura Research Institute, Michael Green, said the new policy would lead to an increase in the number of people being able to enter the 'mass property market'. He said more people being able to buy flats would stimulate the demand in the property market. According to him, with the 25-year repayment period policy, a buyer of a New Territories flat at current prices and at the normal mortgage rate of 70 per cent would see an improvement of six per cent of its cash flow. Instead of repaying $10,540 per month if given a 20-year repayment period, the buyer would pay $9,947 per month under the 25-year repayment period, he said.