A calculation error that led to thousands of homeowners being undercharged on their mortgage payments occurred during a failed system upgrade, the two banks in question have admitted.

Up to 18,000 homeowners could face a shortfall on their variable rate mortgages from the Yorkshire and Clydesdale banks, both of which are division of the National Australia Group Bank.

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An upgrade intended to introduce new features including over-payments and mortgage holidays, which took place in 2005, resulted in a “rounding error”, the banks revealed this week. The problems were exascerbated by Bank of England base rate reductions during the 2008/09 economic downturn, they added.

Impacted customers have been sent letters by Clydedale and Yorkshire informing them that they may now face increased monthly payments due to the error.

“We applied some changes to our mortgage systems to add more features for customers,” the bank said in a written statement. “Unfortunately, this created an error in the way that some regular mortgage payments were calculated.”

“This calculation error, when combined with last year’s unprecedented rapid reduction in interest rates, resulted in some customers’ regular payments falling below the minimum required to complete the mortgage within the agreed term.”