In a results statement revealing a big rise in annual profits for 2021, the Spanish lender's UK arm said it expected its margin on loans this year to be "adversely affected by increased competition for mortgage lending".

It said that will be offset by the broader impact of rising rates - a trend that tends to boost banks as it means they can make more money from borrowers.

The comments come a day before the Bank of England's latest policy announcement which is expected to see another rise in the base rate from 0.25% to 0.5%, as officials try to face down the threat of surging inflation.

Bank rate was slashed to 0.1% in 2020 to try to cushion the economy from the COVID-19 crisis but was increased to 0.25% in December with demand recovering and prices surging.

Santander's "base case" is for the rate to rise further to 0.75% later in the year.

Experts expect the pace of growth in the housing market to slow this year partly as a result of rising rates as well as the wider surge in the cost of living and the increasing lack of affordability of homes.

Santander reported a big rise in 2021 annual profits from £508m to £1.86bn, as it clawed back a £233m chunk of the £639m set aside the year before to cover the expected cost of loans going bad as a result of the downturn.

It shrugged off the impact of the Omicron variant on the UK economy, saying that while it dragged on growth at the end of the year, it was overall likely to be limited.

However it does not expect this year to repeat the claw back of money set aside for bad loans.

Chief executive Nathan Bostock said the lender had "delivered another strong financial performance in a changeable and competitive environment".

He said Santander further cemented its position as the UK's third largest mortgage lender with £7.5bn of net home loans and attracted 19,000 new current account customers.

"Our strategy means we are in good shape thanks to our prudent approach to risk, strong capital and resilient balance sheet and we are well placed to continue growing as the UK economy recovers," Mr Bostock added.

The results also revealed a £52m rise in charges faced by the bank to cover the cost of a rise in scams.

Meanwhile, the bank said a £130m pay-out to customers mistakenly made on Christmas Day as a result of s system glitch had been "largely recovered".

Santander said overall operating costs jumped 5% to £278m as it shut 111 branches and reduced head office space by 40%.