Rising interest rates is causing pain for British homeowners as mortgage rates are usually fixed for only several years
Home lenders are taking advantage of the drop in mortgage rates AFP

More people are applying for home loans as mortgage rates fall to the lowest level in two months.

The average 30-year fixed rate dropped to 7.41% in the week ended Nov. 17 from 7.61% a week earlier, according to the Mortgage Bankers Association. The rate was close to 8% in mid-October. Applications for mortgages increased 3%.

"U.S. bond yields continued to move lower as incoming data signaled a softer economy and more signs of cooling inflation," MBA's Vice President and Deputy Chief Economist Joel Kan said in a statement. "Mortgage applications increased to their highest level in six weeks, but remain at very low levels."

Applications for refinancing mortgages increased 1.6% last week, "but the level of refinances continues to be well below historical averages, given that most borrowers already have a rate well below current market rates," Kan said.

Mortgage rates respond directly to moves in the bond market and to the Federal Reserve policy.

In the minutes of the last meeting of the Federal Open Market Committee, released Tuesday, the Fed said that the current level of interest rates, the highest in 22 years, is still going to weigh on economic activity, hiring and inflation, although the impacts are "uncertain."

Sales of previously owned homes in the U.S. fell in October to the slowest pace since August 2010. Existing home sales dropped 4.1% from September and 15% from a year earlier, the National Association of Realtors said in a statement Tuesday.