Financial Secretary Antony Leung Kam-chung has called on Hong Kong bankers to extend loan payment relief to cash-strapped homeowners caught in a negative-equity trap. In turn, bankers have urged the Government to get its housing policy in order. The appeals were exchanged during an unscheduled hour-long meeting called yesterday by Mr Leung ahead of tomorrow's policy address by Chief Executive Tung Chee-hwa - widely expected to address the growing problem of negative equity in the property market. 'I think the bankers are sympathetic,' Mr Leung said after yesterday's meeting. 'We all agreed that the Government as well as the banking sector have a role to play in helping our people economically.' He said bank executives he met with - representing HSBC, Hang Seng Bank, Standard Chartered Bank, Citibank, the Bank of China, and the Bank of East Asia - were willing to help. 'They will arrange for a reduction in rates if the circumstances allow, as well as in lengthening repayment periods and that kind of thing,' Mr Leung said. However, analysts said this added nothing to a similar message carried to the Legislative Council by Bank of East Asia chairman David Li Kwok-po as far back as February, when the issue of negative equity was first raised as a concern. Standard Chartered chief executive and general manager in Hong Kong Peter Wong Tung-shun said bankers had used the opportunity to correct a misconception that homeowners caught in a negative-equity trap were suffering because they were still paying interest rates that were significantly above prime lending rates. Negative equity arises when the value of a property falls below the mortgage raised on the property. It is estimated that up to 30 per cent of Hong Kong homeowners have been affected in this way by the sharp falls in property prices in the wake of the 1997/98 Asian financial crisis. Homeowners in such a situation would find it difficult or impossible to benefit from falling interest rates by paying off old mortgages taken out at higher rates of interest with new loans raised at lower rates of interest since the collateral security of their houses had fallen sharply. 'The financial secretary was under the impression that the rate was high, but we have told him that is not the case,' Mr Wong said. 'The perception in the market is that customers on negative equity are being charged prime plus 2 or more per cent. But when bankers compared notes at yesterday's meeting, it emerged that the weighted average of interest rates charged to negative equity customers is approximately prime, or prime minus 1 per cent.' That remains significantly higher than the prime minus 2.75 per cent which new mortgages are now priced at. Latest data from the Hong Kong Monetary Authority showed 90 per cent of loans are now priced at below 1.5 per cent below prime, with 57.6 per cent charged at 2.25 per cent or more below prime. 'We are all very sympathetic about the negative-equity situation and the objective is to try to relieve some of the cash flow burden on those homeowners,' Mr Wong said. 'So we have ideas like lengthening payment periods and paying interest only - because rates are already at a fairly low level. 'But we also suggested that the housing policy going into the future is most important. 'It is only through a consistent housing policy and economic growth that the housing situation will get any better. What banks can do now will not be a long-term fix,' he said. Net housing equity - defined as the present market value of privately owned houses in Hong Kong minus the total outstanding mortgages over those houses - is estimated by the HKMA to have plunged from HK$3.7 trillion in 1997 to HK$1.8 trillion last year. Accounting firm Deloitte Touche Tohmatsu this week urged the Government to help relieve the burden on homeowners by raising the cap on mortgage interest tax deductions from HK$100,000 to HK$200,000 for the next two years.