An as yet unknown number of borrowers with capital and interest (‘repayment-type’) mortgages have been unwittingly overpaying on their homeloans.

With a repayment-type mortgage, the payment the borrower makes each month is made up of the interest they owe, plus a small amount of the capital loan outstanding, reducing the size of the loan and hence the amount of interest owed the next month.

On some mortgage accounts the Co-op had failed to pay off the capital, leaving borrowers with higher interest bills than they should have faced.

Borrowers would not have noticed, because most lenders work out their calculations in advance and ‘smooth out’ repayments, so the monthly mortgage payments are maintained at the same level. If there is an interest rate change, the amount owed is recalculated and the payment schedule adjusted at the end of the year.

The mortgages affected by the error came via Co-op’s broker channel Platform and the now-closed Optimum mortgage brand, both formerly part of Britannia Building Society.

Co-op has said that it will compensate those borrowers affected, but it has not yet told those customers who they are and a spokesperson told Your Mortgage it was not in a position to disclose how many mortgage accounts were involved.

The troubled bank also announced this morning it would set aside around £100m to fund extra PPI claims, arrears charges and redress to customers who overpaid on their mortgages after a bank error with their first payments.

“The bank has made a re-assessment of certain likely future conduct costs and, as a result, the bank expects to increase its overall provisions by approximately £100-105m,” Co-op Bank said in a statement.

“The bank’s estimates of existing provisions relating to customer redress have been revised, with these revisions relating primarily to a change in assumptions regarding the future costs of PPI redress, arrears charges and the processing of certain mortgage interest ‘first payments’.

“An additional provision has also been made in relation to the cost of customer redress that will be required following the identification of a technical breach of the Consumer Credit Act.”

The Co-operative Group is also likely to lose control of its banking arm after investors rejected a plan to save the troubled firm.

It was revealed in the summer Co-op Bank was faced with a £1.5bn capital shortfall, prompting a restructure of the bank. Under the original rescue plan Co-op Group would have retained a stake of around 70% in the bank after floatation on the stock exchange.

The BBC reported this plan has been rejected by a group of investors which owns around 43% of the Co-op Bank tier-two bonds. This means Co-op Group will not have control of the bank after flotation, although no deal has been officially agreed.