The Post Office is to launch a major assault on the mortgage market on Monday with its first tracker deal and a rate cut on some existing products.

Its aim is to become one of the Britain’s top ten lenders, approving at least £3 billion worth of home loans by the end of next year.

The Post Office expansion into the mortgage market is being financed by Bank of Ireland as part of a joint venture. The bank was the eighth-biggest lender in the UK last year, providing £9.2 billion in mortgages, but it was forced to withdraw in February amid the financial crisis.

Now rescued by the Irish Government, it is backing the first major push into the UK home loans market since the outbreak of the credit crunch and the nationalisation of Northern Rock.

Brokers hope that the arrival of new lenders will increase competition and help to drive down rates, which have been climbing in recent months even as the cost of securing wholesale funding has fallen for lenders.

Tesco Bank, the personal finance arm of the supermarket chain, is set to launch a mortgage range, available from branches set up within its superstores. Virgin Money is also looking at a major push into the retail banking sector. In addition, a number of foreign banks are set to follow the move by Bank of China this year to break into the UK market.

Ray Boulger, of John Charcol, the mortgage broker, said: “There are at least two or three major lenders planning to enter the market in the next year, but it will depend largely on the state of the wholesale money markets. When Tesco arrive in the market it will herald a further shake-up.”

Last night, Nationwide Building Society and Northern Rock, the state-owned lender, cut the cost of some of their mortgages. Nationwide cut interest rates on deals for existing customers by up to 0.84 percentage points. Northern Rock lowered rates by up to 0.4 percentage points.

Az Alibhair, head of lending at the Post Office, said: “Trust in banks is low and the needs of a broad range of borrowers are not being met by the current range of deals available from traditional lenders. Our new mortgages offer customers good initial and long-term value.”

The new Post Office range of mortgages will include fixed-rate deals from 4.59 per cent and base-rate tracker deals at 3.09 points above base, giving a pay rate of 3.59 per cent. The mortgages will be available only directly from the Post Office and not through brokers. Borrowers will need at least a 20 per cent deposit.

The move, which will cover the entire 12,000 branch network, is an expansion of a two-year pilot project that sold a small range of deals in only 100 branches and online.

David Hollingworth, of London & Country Mortgages, a broker, said: “These rates are not the most competitive on the market but the Post Office has the advantage of an enormous high street presence and it is a trusted brand.

“However, a question mark remains over whether customers will be happy to inquire about a mortgage at the same time as picking up stamps.”

Customers will be able to get details on a range of fixed-rate and tracker mortgages in every branch, while staff in 370 larger outlets, which already provide information on Post Office insurance deals and savings accounts, can check customers’ eligibility for a loan. Applications will be taken over the phone or online.