The Post Office said it was cutting its fixed-rate mortgages for the fourth time this year, leaving it with market-leading rates for two- and five-year deals.
It said the move reflected its ambitions to become a leading player in the mortgage market through a joint venture with the Bank of Ireland.
The announcement comes a week after the government said it wanted the Post Office to double the size of its mortgage book during the coming 12 months.
The reductions, which come into force today, leave the Post Office with a market-leading rate of 3.15 per cent on a two-year fixed-rate mortgage for people with a 25 per cent deposit, and one of 4.59 per cent for a five-year deal for people with 40 per cent.
Its three-year fixed-rate loan will take third place in the best-buy tables, and is available to people borrowing up to 75 per cent of their home's value.
The group is joined by Barclays' lending arm the Woolwich, which is cutting the interest it charges on its tracker and fixed-rate deals for people with a 25 per cent deposit by up to 0.6 per cent.
It is also launching a market-leading lifetime tracker of 2.49 per cent, or base rate plus 1.99 per cent, for people borrowing up to 75 per cent of their home's value.
Nationwide also announced that it was cutting rates on 29 of its fixed-rate and tracker deals, reducing them by up to 0.59 per cent and an average of 0.23 per cent.
Rates have been falling steadily since the beginning of the year, as conditions in the mortgage market slowly improve.
The average cost of a two-year fixed-rate mortgage is currently 4.72 per cent, down from 4.88 per cent in January, while two-year tracker rates have dropped to 3.58 per cent from 3.77 per cent, according to financial information group Moneyfacts.co.uk.
There has also been a significant improvement in the number of different deals available for people with smaller deposits.
There are currently 138 products on offer for people with only 10 per cent to put down, up from 114 in January – a 21 per cent rise – while mortgages for people borrowing up to 80 per cent of their home's value have soared by 63 per cent to 270.
But there remains very little choice for people with only a 5 per cent deposit, with the number of mortgages available for these borrowers increasing only slightly since the beginning of the year from nine to 13.
Meanwhile, separate research showed that First Direct was the most consistently competitive mortgage lender during the first quarter of the year, receiving 19 mentions in best-buy tables, closely followed by the Post Office at 18.
Alliance & Leicester, the Yorkshire Building Society and the Woolwich made up the rest of the top five, according to website realpricecomparison.com.
None of the Lloyds Banking Group brands offered a market-leading rate during the first three months of the year, while NatWest appeared on the best-buy tables three times and RBS and Northern Rock had one mention each.
The website produced the rankings by seeing how many times a lender had a product that was included in the top 10 of a best-buy table across all mortgage categories.