Lloyds Banking Group is setting aside an additional £800m for car finance compensation claims, bringing the total amount allocated by the bank for redress to nearly £2bn.

The company said that the number of eligible claims is expected to be higher than previously thought.

Millions of drivers who bought cars on finance with hidden commission payments between 2007 and 2024 may be eligible for redress.

The Financial Conduct Authority (FCA) published details of its proposed compensation scheme last week.

The FCA said payouts could be due on around 14 million unfair deals, averaging at about £700 each.

This could result in lenders paying out a total of £8.2bn in compensation.

The payouts are over commission arrangements between lenders and dealers, unfair contracts, and inaccurate information given to car buyers.

Lloyds said in a statement: “Based on the FCA proposals in their current form, the potential impact is at the adverse end of the range of previous expected outcomes.”

It said it was setting aside an additional £800m for redress based on “the increased likelihood of a higher number of historical cases… being eligible for redress”.

It said its “best estimate” of the total cost of redress was £1.95bn.

The proposed scheme would be free to access for consumers, although the interest they receive on redress will be much lower than that paid following the payment protection insurance (PPI) scandal.

That scandal cost Lloyds £22bn.

The FCA estimates that 44% of all motor finance agreements made since 2007 will be eligible for payouts.

But a ruling at the Supreme Court in August limited the breadth of these cases.

The FCA advises anyone who wants to make a complaint to get in touch with their lender or broker, and has this guidance on how to complain.

But the Finance and Leasing Association, the body that represents the lending industry, has said the FCA is “overcompensating”.

Lloyds said on Monday that it did not think the FCA’s calculations reflect the actual amount that customers lost out.

It believes customers could therefore get more than the full commission back under the FCA’s proposed scheme.

Under the scheme, eligible car owners would be given the average of what it estimates they overpaid – the commission paid, plus interest.

Another lender, Close Brothers, which is deeply exposed to motor finance compensation, said it was also likely to need to set aside more money for payouts.

In a statement on Thursday, it said its “initial assessment” following the FCA’s proposals was that it would need to increase its current provision of £165m.

However, the company pointed out that uncertainty remained over the final compensation requirements, with the current proposals under consultation.

Consumer campaigners have urged lenders not to fight the FCA’s compensation plans, in order to ensure drivers do not have to wait even longer for redress and to bring a swifter conclusion to the saga.

But Russ Mould, investment director for AJ Bell, said Lloyds “gives the impression it is not happy with the proposed compensation methodology, implying this is not a done and dusted situation”.

Average mortgage rates have risen for the first time month-on-month since February as lenders approach the winter with caution.

Following a series of drops in mortgage interest rates, the picture worsened slightly for new and renewing borrowers over the last month, according to financial information service Moneyfacts.

The average rate for a two, or five, year fixed rate stands at about 5%, much lower than the peak of recent years, but still a stretch for many homeowners.

Analysts suggest imminent, further base rate cuts by the Bank of England appear unlikely, and uncertainty always foreshadows a Budget.

Moneyfacts data shows that mortgage rates only climbed very slightly over the month, by 0.02 percentage points.

That took the rate on an average two-year deal to 4.98%, and to 5.02% for the average five-year mortgage.

More than eight in 10 mortgage customers have fixed-rate deals. The interest rate on this kind of mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it.

Hundreds of thousands of potential first-time buyers also hope to get a place of their own with their first mortgage. All would welcome low mortgage rates.

Rachel Springall, from Moneyfacts, said that the latest situation might well “disappoint” borrowers.

“Volatile swap rates and a cautionary approach among lenders have led to an abrupt halt in consecutive monthly average rate falls,” she said.

Swap rates reflect the market’s view of which direction the Bank of England’s interest rates will go, so lenders use them to set their own rates.

“Lenders have responded cautiously, with some edging rates higher and the overall average ticking up slightly,” said Simon Gammon, managing partner at mortgage advisers Knight Frank Finance.

“This is unlikely to mark the start of a sustained rise in borrowing costs, but rather a prolonged plateau while the outlook becomes clearer.”

The rates during this October are much lower than this month two years ago, when the average rate for a two-year deal was 6.67%.

Some homeowners would have become accustomed to much lower rates during the 2010s, so will now be budgeting for bigger monthly repayments, alongside other financial pressures such as the rising cost of food.

The government has said it will support people with the cost of living. The Budget will be delivered by Chancellor Rachel Reeves in November.

Ms Springall, from Moneyfacts, said that borrowers should consider their own circumstances and seek guidance when required.

“It remains essential borrowers seek independent advice to navigate the mortgage maze and not feel pressured to secure a deal because of the Budget rumour mill,” she said.

On Monday, the Institute for Fiscal Studies, an independent economic think-tank, said that the chancellor should avoid “directionless tinkering and half-baked fixes” when trying to boost the government’s tax take in the Budget.