The society said it was also cutting variable mortgage rates in its high street branch network to 6.99 per cent, the second-lowest after Northern Rock, which stands at 6.74 per cent.
The new telephone rates, which take effect from 1 April for existing mortgages, are now below base rates for the first time since the ERM crisis in September 1992. They cut a further pounds 7 a month off the average cost of a pounds 50,000 mortgage.
Bradfor & Bingley's new rates are part of the continuing battle between mutual societies, such as itself, and those, like Halifax, Alliance & Leicester and Woolwich, which have announced that they are to seek a stock market listing next year.
Shares in all the big banks fell on news of the announcement. Barclays dropped 26p to 688p, Abbey National fell 21p to 534p, while the Lloyds/TSB group sank 15.5p to 297p.
Other societies, includingNationwide, which has already pitched its mortgage rates at a low of 6.99 per cent as part of a pounds 200m profits giveaway to its 7 million members, are expected to trim the cost of home loans still further.
The cuts follow a decision by Halifax and most other big lenders to reduce the cost of their loans by 0.24 per cent to 7.25 per cent in the wake of the move last Friday by the Chancellor, Kenneth Clarke, to bring down base rates to 6 per cent.
John Wriglesworth, head of strategy at Bradford & Bingley, said yesterday that the society was committed to continuing the war between mutuals and the future banks.
"We will continue to show why it is in the interests of building society members to remain so rather than de-mutualise. Whatever happens, we will be more competitive with the banks both as far as savings are concerned and for mortgages.
"Whereas they have to reserve a large part of their profits for shareholders, or in the case of those planning to float, to ensure the best possible price at flotation, we can pass on our profits directly to our members."
Mr Wriglesworth said financing the new low mortgage rate would come from savings by members, which would be cut by a similar amount in the next few weeks. But he added: "We will still have better savings rates than the others who are preparing to de-mutualise."
The Bradford & Bingley telephone mortgage arm's new rate of 5.99 per cent, down from an already competitive 6.25 per cent, adds a new and increasingly important twist to the frenetic war now taking place between lenders.
Telephone lenders are able to make huge administrative savings. By targeting clients with high loan-to-value mortgages, 75 per cent in the case of Bradford & Bingley, they can also cherry-pick the best customers.