There was renewed action in the US mortgage market last week, figures showed. However, mortgage experts said that it would take far more than Tuesday’s savage interest rate cut by the Federal Reserve to revive the stagnant housing sector.

The Mortgage Bankers Association’s (MBA) weekly survey released yesterday showed that US home loan applications rose last week, even before the Fed slashed the short-term interest rate by 0.75 per cent to a range of 0 per cent to 0.25 per cent.

The Fed rate sets the interest rate at which banks can borrow.

Spurred on by mortgage interest rates at near-record lows, Americans sent the MBA’s market composite index, which is a measure of mortgage application volumes, up by a seasonally adjusted 2.9 per cent.

This was an increase of 37.7 per cent on the same week last year. The index that measures remortgaging jumped by 6.5 per cent.

The average rate for a 30-year fixed mortgage fell to 5.18 per cent last week, the lowest rate since June 2003 and slightly above an all-time low of 4.99 per cent in the 18-year history of the survey. This rate is available to buyers with a 20 per cent deposit.

Guy Cecala, the publisher of Inside Mortgage Finance, a mortgage research provider, attributed the low mortgage rate to the Fed’s promise last month to buy $500 billion of mortgage-backed securities, rather than expectations of Tuesday’s rate cut.

Most US banks price retail mortgages on their ability to sell mortgage-backed securities to investors as well as the rate at which they can borrow.

Mr Cecala said that although the market for mortgage-backed securities remained difficult, with banks having to pay higher rates on their mortgage securities to attract investors, the promise of demand for the securities from the Fed had helped to free up sales slightly.

“The Fed’s promise is what pushed rates down from 6 per cent to near 5 per cent,” Mr Cecala said. “The real question is what the authorities can do to get rates to 4.5 per cent. That would probably take something like the subsidy programme for people who buy homes that they’ve been talking about.”

But Kathleen Day, a spokesman for the Centre for Responsible Lending, a non-profit think-tank, argued that the Government needed to stem the rising number of foreclosures on homeowners before there was a true recovery.

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