Lending up to 100 per cent of home values to aid homeowners caught in a 'negative equity' trap presents banks with a difficult choice, according to KPMG banking partner John Harrison. 'Lending must be priced on the basis of risk analysis,' Mr Harrison said. 'And there is the conundrum - because while banks want to help homeowners, they must also look after their shareholders.' Mr Harrison was commenting on recent appeals to banks to refinance the loans of homeowners caught in a negative equity trap, which occurs when the value of their homes falls below the size of the loans raised to buy them. Banks have been told they could exceed the standard loan-to-value guideline of 70 per cent and make loans of up to 100 per cent. They have also been urged to lower the rate of interest charged to be closer to their best mortgage lending rates. 'It's not just the interest rate,' Mr Harrison said. 'Perhaps banks can extend the term of the loan. Obviously the last thing they want to do is to have more defaults and repossess more properties.'