The Financial Conduct Authority (FCA) had been in discussions with the lender and has agreed that Santander will contact over 270,000 borrowers regarding unclear information it gave in 2008 before increasing the cap on its mortgage standard variable rate (SVR).

The regulator said that the lender should have given affected borrowers clear information about the change and their options, but the material provided could have left borrowers unsure about what was happening.

Some borrowers did not receive a letter at all, the regulator said.

The lender confirmed that the issue affected Abbey customers who had a balance remaining on their mortgage in December 2008. No customers from the former Alliance & Leicester brand were impacted by the move.

The FCA said that ‘only a minority of borrowers’ will be entitled to a redress, depending on whether customers could have switched to a better deal.

Santander will contact customers between now and the autumn to provide a summary of what happened, what should have happened, and invite customers to complain if they feel they lost out financially.

A statement released by the FCA said: “When Santander raised the cap it should have given affected borrowers clear information in easy to understand terms.

“But the letters it sent were not clear so borrowers may not have understood what was going to happen, how this was going to affect them and the options open to them.”