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Exhibit 10.2

EXECUTION COPY

AMENDED AND RESTATED MORTGAGES TRUST DEED

28 MAY 2008

 

BANK OF SCOTLAND PLC

and

PERMANENT FUNDING (NO. 1) LIMITED

and

PERMANENT FUNDING (NO. 2) LIMITED

and

PERMANENT MORTGAGES TRUSTEE LIMITED

and

SFM OFFSHORE LIMITED

 

 

 

 

 

ALLEN & OVERY

 

Allen & Overy LLP

 

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CONTENTS

Clause
Page
1. Definitions and Construction
2
2. Creation of Mortgages Trust
2
3. Conditions Precedent
3
4. Acquisition by Funding 1 and/or Funding 2 of an Increased Interest in the
Trust Property
4
5. Initial Funding 1 Share, Initial Seller Share and Initial Funding 2 Share
8
6. Acquisition by Seller of an Interest Relating to Capitalised Interest
9
7. Payment by the Seller, Funding 1 and/or Funding 2 to Funding 1 or Funding 2
of the Amount Outstanding under an Intercompany Loan or the Master Intercompany
Loan
9
8. Adjustment of Funding 1 Share Percentage, Funding 2 Share Percentage and
Seller Share Percentage on Calculation Dates
10
9. Minimum Seller Share
14
10. Allocatin and Distribution of Revenue Receipts
15
11. Allocation and Distribution of Principal Receipts
17
12. Allocation of Losses
20
13. New Beneficiary of the Mortgages Trust
20
14. Ledgers
21
15. Costs and Expenses of the Mortgages Trustee
22
16. Directions from Beneficiaries
22
17. Transfers
23
18. Covenants of the Mortgages Trustee
24
19. Power to Delegate
25
20. Powers of Investment
25
21. Other Provisions Regarding the Mortgages Trustee
25
22. No Retirement of Mortgages Trustee
27
23. Termination
27
24. Further Assurances
27
25. Amendments
27
26. Non Petition Covenant
28
27. No Partnership or Agency
28
28. Calculations
28
29. No Waiver, Remedies
28
30. Execution in Counterparts/Severability
28
31. Tax
28
32. Confidentiality
29
33. Exclusion of Third Party Rights
29
34. Addresses for Notices
30
35. Governing Law and Submission to Jurisdiction
31
36. Exclusion of Trustee Act 2000
31

Signatories
32

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THIS AMENDED AND RESTATED MORTGAGES TRUST DEED (this Deed) is made as a deed on
28 May 2008 between:

(1) BANK OF SCOTLAND plc (registered number SC327000) (formerly The Governor and
Company of the Bank of Scotland), a public limited company incorporated under
the laws of Scotland whose registered office is at The Mound, Edinburgh, EH1 1YZ
(acting in its capacities as the Seller, a Beneficiary and the Cash Manager);

(2) PERMANENT FUNDING (NO. 1) LIMITED (registered number 4267660), a private
limited company incorporated under the laws of England and Wales whose
registered office is at 35 Great St. Helen’s, London EC3A 6AP (acting in its
capacities as a Beneficiary and Funding 1);

(3) PERMANENT FUNDING (NO. 2) LIMITED (registered number 04441772), a private
limited company incorporated under the laws of England and Wales whose
registered office is at 35 Great St. Helen’s, London EC3A 6AP (acting in its
capacities as a Beneficiary and Funding 2);

(4) PERMANENT MORTGAGES TRUSTEE LIMITED (registered number 83116), a private
limited company incorporated under the laws of Jersey whose registered office is
at 47 Esplanade, St Helier, Jersey JE1 0BD, Channel Islands (acting in its
capacity as the Mortgages Trustee); and

(5) SFM OFFSHORE LIMITED (registered number 76015), a private limited company
incorporated under the laws of Jersey whose registered office is at 47
Esplanade, St Helier, Jersey JE1 0BD, Channel Islands (acting in its capacity as
the Share Trustee).

WHEREAS:

(A) On 13 June 2002 the Share Trustee assigned the Initial Trust Property to the
Mortgages Trustee and the Mortgages Trustee declared that it held and would hold
the Trust Property on trust absolutely for the benefit of Funding 1 and Halifax
(then in its capacity as the Seller) on the terms and subject to the conditions
set out in the Mortgages Trust Deed dated such date.

(B) Pursuant to the terms of the Seller Mortgages Trust Assignment Agreement,
Funding 2 acquired a portion of Halifax’s beneficial interest in the Mortgages
Trust on 17 October 2006.

(C) On the Reorganisation Date, pursuant to the HBOS Group Reorganisation Act
2006, The Governor and Company of the Bank of Scotland was registered as a
public company under the Companies Act 1985 and changed its name to Bank of
Scotland plc and the business and all property and liabilities of Halifax
(including its beneficial interest in the Mortgages Trust and its rights and
obligations under the Mortgages Trust Deed) were transferred to Bank of
Scotland.

(D) The Mortgages Trustee holds the Trust Property as bare trustee for the
Beneficiaries upon, with and subject to the trusts, powers and provisions of the
Mortgages Trust Deed.

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(E) The Seller carries on the business of, inter alia, originating residential
first mortgage loans to individual Borrowers in the United Kingdom including
under the Halifax brand and of managing and administering such mortgage loans
and residential first mortgage loans that were originated by Halifax. Halifax
assigned the Initial Portfolio to the Mortgages Trustee on 14 June 2002 and
(from time to time) has sold New Portfolios to the Mortgages Trustee, pursuant
to the terms of the Mortgage Sale Agreement. Bank of Scotland may sell further
New Portfolios to the Mortgages Trustee pursuant to the terms of the Mortgage
Sale Agreement. The Initial Portfolio is, and any New Portfolios are and shall
be, held by the Mortgages Trustee (in relation to Scottish Loans, in its
capacity as beneficiary under a Scottish Declaration of Trust) on trust for the
Beneficiaries upon, with and subject to the trusts, powers and provisions of the
Mortgages Trust Deed.

(F) The parties to the Mortgages Trust Deed have agreed to further amend and
restate the terms of the Mortgages Trust Deed on the date hereof as set out
herein.

NOW THIS DEED WITNESSES:

1. DEFINITIONS AND CONSTRUCTION

1.1 The amended and restated master definitions and construction schedule signed
by, amongst others, the parties to this Deed and dated 23 April 2008 (as the
same may be amended, varied or supplemented from time to time with the consent
of the parties to this Deed) (the Master Definitions and Construction Schedule)
is expressly and specifically incorporated into this Deed and, accordingly, the
expressions defined in the Master Definitions and Construction Schedule (as so
amended, varied or supplemented from time to time) shall, except where the
context otherwise requires and save where otherwise defined herein, have the
same meanings in this Deed, including the Recitals hereto and this Deed shall be
construed in accordance with the interpretation provisions set out in Clause 3
of the Master Definitions and Construction Schedule.

1.2 This Deed amends and restates the mortgages trust deed made on 13 June 2002
as amended and restated on 6 March 2003, 25 November 2003, 12 March 2004, 22
July 2004, 18 November 2004, 23 March 2005, 22 March 2006, 17 October 2006 and
21 November 2007 (the Principal Deed). As of the date of this Deed, any future
rights or obligations (excluding such obligations accrued to the date of this
Deed) of a party under the Principal Deed shall be extinguished and shall
instead be governed by this Deed, provided that the Mortgages Trust shall not be
terminated as a result thereof but shall continue on the terms of the Principal
Deed as amended by this Deed.

2. CREATION OF MORTGAGES TRUST

2.1 Initial Trust Property

On 13 June 2002 the Share Trustee assigned the Initial Trust Property to the
Mortgages Trustee and the Mortgages Trustee declared that it held the Initial
Trust Property on trust absolutely as to both capital and income by the
Mortgages Trustee for the benefit, as beneficial tenants in common, of Halifax
(then in its capacity as the Seller) as to the Initial Seller Share Percentage
and Funding 1 as to the Initial Funding 1 Share Percentage.

2.2 Initial Closing Trust Property

Pursuant to the provisions of the Mortgage Sale Agreement, Halifax (then in its
capacity as the Seller) assigned the Initial Closing Trust Property to the
Mortgages Trustee on the Initial Closing Date.

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2.3 Future Trust Property

From time to time and pursuant to the Mortgage Sale Agreement, Halifax (then in
its capacity as the Seller) has sold and Bank of Scotland (in its capacity as
the Seller since the Reorganisation Date) intends to sell the Future Trust
Property to the Mortgages Trustee.

2.4 Trust Property

Subject to Clause 3.4, the Mortgages Trustee shall hold the Trust Property as to
both capital and income on trust absolutely for Funding 1 (as to the Funding 1
Share), for Funding 2 (as to the Funding 2 Share) and for the Seller (as to the
Seller Share) as beneficial tenants in common upon, with and subject to all the
trusts, powers and provisions of this Deed.

2.5 Other Trust Property

The Trust Property shall also include:

(a) any increase in the Outstanding Principal Balance of the Loans in the
Portfolio due to capitalisation of interest, expenses or arrears, Borrowers
taking Payment Holidays, or Borrowers making any Flexible Loan Drawing,
Retention Drawing, drawing under a Delayed Cashback or Home Cash Reserve
Drawing;

(b) any Revenue Receipts and Principal Receipts on the Loans in the Portfolio;

(c) any other amounts received under or in respect of the Loans and their
Related Security on or after the relevant Sale Date (excluding Third Party
Amounts), including the proceeds of any sale of the Loans and their Related
Security and any other proceeds of sale of any other Trust Property;

(d) rights under the insurance policies that are assigned to the Mortgages
Trustee or which the Mortgages Trustee has the benefit of;

(e) amounts on deposit (and interest earned on those amounts) in the Mortgages
Trustee GIC Account; and

(f) any other property representing Initial Trust Property or (a) to (e) above
from time to time.

3. CONDITIONS PRECEDENT

3.1 The Initial Trust Property is held by the Mortgages Trustee on the Mortgages
Trust.

3.2 The Initial Closing Trust Property was held by the Mortgages Trustee on the
Mortgages Trust upon the satisfaction of the following conditions precedent:

(a) due execution and delivery of the mortgage sale agreement dated the Initial
Closing Date by all parties to it;

(b) due execution and delivery of the mortgages trust deed dated 13 June 2002 by
all parties to it; and

(c) in respect of the Funding 1 Share of the Trust Property only, payment of the
Purchase Price by Funding 1 to Halifax (then in its capacity as the Seller) on
the Initial Closing Date.

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3.3 The Initial Closing Trust Property is and any Future Trust Property which
has or is to be sold shall be held by the Mortgages Trustee on the Mortgages
Trust subject to satisfaction of the conditions set out in Clause 4.1 of the
Mortgage Sale Agreement for the sale of New Loans and their New Related Security
to the Mortgages Trustee.

3.4 The requirement for the Mortgages Trustee to hold the Trust Property on
trust for Funding 2 was conditional upon the payment of £100 by Funding 2 to
Halifax (then in its capacity as the Seller) for the acquisition by Funding 2,
by way of assignment, from Halifax (then in its capacity as the Seller) of a
portion of its beneficial interest in the Mortgages Trust in accordance with the
terms of the Seller Mortgages Trust Assignment Agreement.

4. ACQUISITION BY FUNDING 1 AND/OR FUNDING 2 OF AN INCREASED INTEREST IN THE
TRUST PROPERTY

4.1 Offer to pay

On not more than 60 days’ written notice nor less than 20 days’ written notice:

(a) Funding 1 may offer to make a payment to the Seller or Funding 2 (as
applicable) so as to increase the Funding 1 Share of the Trust Property and to
cause a corresponding decrease in the Seller Share of the Trust Property or the
Funding 2 Share of the Trust Property (as the case may be) on the date specified
in that notice (and any such adjustments to the relevant Beneficiaries’ Shares
to be calculated in accordance with Clause 8); and/or

(b) Funding 2 may offer to make a payment to the Seller or Funding 1 (as
applicable) so as to increase the Funding 2 Share of the Trust Property and to
cause a corresponding decrease in the Seller Share of the Trust Property or the
Funding 1 Share of the Trust Property (as the case may be) on the date specified
in that notice (and any such adjustments to the relevant Beneficiaries’ Shares
to be calculated in accordance with Clause 8).

Such offer may only be accepted if the following conditions precedent are
satisfied on such date:

(i) in the case of an offer by Funding 1:

  (A) no deficiency is recorded on the Principal Deficiency Ledger as at the
most recent Funding 1 Interest Payment Date;

  (B) no Note Event of Default (in respect of the Notes issued by the Funding 1
Issuers) or Intercompany Loan Event of Default (under an Intercompany Loan
Agreement) shall have occurred which is continuing or unwaived as at the
relevant date;

  (C) the Funding 1 Security Trustee is not aware that the increase in the
Funding 1 Share of the Trust Property would adversely affect the then current
credit ratings by the Rating Agencies (or any of them) of the Notes issued by
the Funding 1 Issuers or the Master Issuer;

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  (D) the Notes have been issued by the relevant Funding 1 Issuer, the
subscription proceeds received on behalf of the relevant Funding 1 Issuer and
advanced by the relevant Funding 1 Issuer to Funding 1 pursuant to an
Intercompany Loan Agreement, the proceeds of which will be applied by Funding 1
and shall be sufficient to make the payment referred to in the notice on the
relevant date;

  (E) Funding 1 has entered into, if necessary, a New Start-up Loan and a New
Funding 1 Swap and adjustments have been made, if required, to the General
Reserve Fund;

  (F) receipt of a solvency certificate executed by an authorised signatory of
the Seller or Funding 2 (as applicable) in form and content acceptable to the
Mortgages Trustee, Funding 1 and the Funding 1 Security Trustee;

  (G) as at the relevant date, the aggregate Outstanding Principal Balance of
Loans constituting the Trust Property, in respect of which the aggregate amount
in arrears is more than three times the monthly payment then due, is less than 5
per cent. of the aggregate Outstanding Principal Balance of all Loans
constituting the Trust Property unless the Rating Agencies have confirmed that
the then current ratings of the Notes of the Funding 1 Issuers or of the Master
Issuer will not be withdrawn, reduced or qualified;

  (H) where Funding 1 makes the offer to the Seller, the Seller has not received
written notice that the short term, unsecured, unguaranteed and unsubordinated
debt obligations of the Seller are not rated at least P-1 by Moody’s, A-1 by
Standard & Poor’s and F1 by Fitch at the time of, and immediately following, the
payment made by Funding 1 on the relevant date;

  (I) the product of the WAFF and WALS for the Loans constituting the Trust
Property calculated on the relevant date in the same way as for the Initial
Portfolio (or as agreed by the Servicer and the Rating Agencies from time to
time) does not exceed the product of the WAFF and WALS (when tested by Fitch at
the “AAA level” as calculated in accordance with Fitch’s methodology) for the
Loans constituting the Trust Property calculated on the most recent previous
Closing Date, plus 0.25 per cent.;

  (J) the loan to value ratio of Loans in the Trust Property, after application
of the LTV Test on the relevant date, does not exceed the loan to value ratio
(based on the LTV Test) of Loans in the Trust Property on the most recent
previous Closing Date, plus 0.25 per cent.; and

  (K) the General Reserve Fund has not been debited on or before the relevant
date for the purposes of curing a Principal Deficiency in respect of the Term
Advances in circumstances where the General Reserve Fund has not been
replenished by a corresponding amount by the relevant date.

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  Funding 1 may not make or offer to make a payment to the Seller or Funding 2
in consideration of an increased share of the Trust Property if, as at the
relevant date, the Step-up Date in respect of any Note issued by a Funding 1
Issuer has been reached and the Funding 1 Issuer who issued that Note has not
exercised its option to redeem that Note as at the relevant date in accordance
with the Terms and Conditions of that Note. For the avoidance of doubt, this
prohibition on Funding 1 making a payment to the Seller or Funding 2 in
consideration of an increased share of the Trust Property shall remain in effect
only so long as any such Note remains outstanding and, upon, its redemption,
Funding 1 may again make a payment to the Seller or Funding 2 in consideration
of an increased share of the Trust Property; and

(ii) in the case of an offer by Funding 2:

  (A) no deficiency is recorded on the Funding 2 Principal Deficiency Ledger
(other than the Subordinated Loan Principal Deficiency Ledger) as at the most
recent Funding 2 Interest Payment Date;

  (B) no Note Event of Default (in respect of Notes issued by the Master Issuer)
or Master Intercompany Loan Event of Default (under the Master Intercompany Loan
Agreement) shall have occurred which is continuing or unwaived as at the
relevant date;

  (C) the Funding 2 Security Trustee is not aware that the increase in the
Funding 2 Share of the Trust Property would adversely affect the then current
credit ratings by the Rating Agencies (or any of them) of the Notes issued by
the Funding 1 Issuers or by the Master Issuer;

  (D) the Notes have been issued by the Master Issuer, the subscription proceeds
received on behalf of the Master Issuer and advanced by the Master Issuer to
Funding 2 pursuant to the Master Intercompany Loan Agreement, the proceeds of
which will be applied by Funding 2 and shall be sufficient to make the payment
referred to in the notice on the relevant date;

  (E) Funding 2 has entered into, if necessary, a New Funding 2 Start-up Loan
and a New Funding 2 Swap and adjustments have been made, if required, to the
Funding 2 General Reserve Fund;

  (F) receipt of a solvency certificate executed by an authorised signatory of
the Seller or Funding 1 (as applicable) in form and content acceptable to the
Mortgages Trustee, Funding 2 and the Funding 2 Security Trustee;

  (G) as at the relevant date, the aggregate Outstanding Principal Balance of
Loans constituting the Trust Property, in respect of which the aggregate amount
in arrears is more than three times the monthly payment then due, is less than 5
per cent. of the aggregate Outstanding Principal Balance of all Loans
constituting the Trust Property unless the Rating Agencies have confirmed that
the then current ratings of the Notes of the Master Issuer or of the Funding 1
Issuers will not be reduced, withdrawn or qualified;

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  (H) where Funding 2 makes the offer to the Seller, the Seller has not received
written notice that the short term, unsecured, unguaranteed and unsubordinated
debt obligations of the Seller are not rated at least P-1 by Moody’s, A-1 by
Standard & Poor’s and F1 by Fitch at the time of, and immediately following, the
payment made by Funding 2 on the relevant date;

  (I) the product of the WAFF and WALS for the Loans constituting the Trust
Property calculated on the relevant date in the same way as for the Initial
Portfolio (or as agreed by the Servicer and the Rating Agencies from time to
time) does not exceed the product of the WAFF and WALS (when tested by Fitch at
the “AAA level” as calculated in accordance with Fitch’s methodology) for the
Loans constituting the Trust Property calculated on the most recent previous
Closing Date, plus 0.25 per cent.;

  (J) the loan-to-value ratio of Loans in the Trust Property, after application
of the LTV Test on the relevant date, does not exceed the loan-to-value ratio
(based on the LTV Test) of Loans in the Trust Property on the most recent
previous Closing Date plus 0.25 per cent.; and

  (K) the Funding 2 General Reserve Fund has not been debited on or before the
relevant date for the purposes of curing a Principal Deficiency in respect of
the Rated Loan Tranches in circumstances where the Funding 2 General Reserve
Fund has not been replenished by a corresponding amount by the relevant date.

Funding 2 may not make or offer to make a payment to the Seller or Funding 1 in
consideration of an increased share of the Trust Property if, as at the relevant
date, the Step-Up Date in respect of any Series and Class of Notes of the Master
Issuer has been reached and the Master Issuer has not exercised its option to
redeem such Series and Class of Notes as at the relevant date in accordance with
the Terms and Conditions of such Series and Class of Notes. For the avoidance of
doubt, this prohibition on Funding 2 making a payment to the Seller or Funding 1
in consideration of an increased share of the Trust Property shall remain in
effect only so long as any such Note remains outstanding and, upon its
redemption, Funding 2 may again make a payment to the Seller or Funding 1 in
consideration of an increased share of the Trust Property.

The Mortgages Trustee may vary or waive the conditions set out in this Clause
4.1 where it has (1) provided notification of such variation or waiver to
Moody’s and (2) received written confirmation from each of S&P and Fitch that
such variation or waiver will not cause the ratings of the Notes of any Funding
1 Issuer or the Master Issuer to be reduced, withdrawn or qualified).

4.2 Completion of Assignment

If an offer is made by Funding 1 or Funding 2 (as applicable) in accordance with
Clause 4.1 above and that offer is accepted by the Seller, Funding 1 or Funding
2 (as applicable), Funding 1 or Funding 2 (as applicable) shall, subject to
satisfaction of the conditions precedent set out in Clause 4.1 above, pay to the
Seller, Funding 1 or Funding 2 (as applicable) an amount equal to the increase
in the Funding 1 Share of the Trust Property or the Funding 2 Share of the Trust
Property (as applicable) and:

(a) in the case of such payment by Funding 1, the Funding 1 Share of the Trust
Property shall increase by a corresponding amount and the Seller Share of the
Trust Property or the Funding 2 Share of the Trust Property (as applicable)
shall decrease by the same amount; or

(b) in the case of such payment by Funding 2, the Funding 2 Share of the Trust
Property shall increase by a corresponding amount and the Seller Share of the
Trust Property

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  or the Funding 1 Share of the Trust Property (as applicable) shall decrease by
the same amount.

4.3 Audit of Loans constituting the Trust Property

If the short term, unsecured, unguaranteed and unsubordinated debt obligations
of the Seller fall below A-1 by Standard & Poor’s, P-1 by Moody’s and/or F1 by
Fitch, then the Beneficiaries shall appoint a firm of independent auditors
(approved by the Rating Agencies) to determine whether the Loans and their
Related Security (or any part of them) constituting the Trust Property complied
with the representations and warranties set out in Schedule 1 of the Mortgage
Sale Agreement as at the date such Loans were sold to the Mortgages Trustee. The
costs of such independent auditors shall be borne by the Beneficiaries pro rata
according to their respective current percentage shares in the Trust Property.

5. INITIAL FUNDING 1 SHARE, INITIAL SELLER SHARE AND INITIAL FUNDING 2 SHARE

5.1 Initial Funding 1 Share

The Initial Funding 1 Share of the Trust Property was £34.38 as at 13 June 2002
and £3,478,376,344.38 as at the Initial Closing Date. The Initial Funding 1
Share Percentage was the Initial Funding 1 Share expressed as a percentage of
the Trust Property as at the Initial Closing Date, such percentage being 34.38
per cent.

5.2 Initial Seller Share

The Initial Seller Share of the Trust Property was the total amount of the Trust
Property minus the Initial Funding 1 Share as at 13 June 2002. As at the Initial
Closing Date, the Initial Seller Share was £6,638,679,574.44 and the Initial
Seller Share Percentage was equal to 100 per cent. minus the Initial Funding 1
Share Percentage, such percentage being 65.62 per cent.

5.3 Initial Funding 2 Share

The Initial Funding 2 Share of the Trust Property was:

(a) £100 following the acquisition by Funding 2, by way of assignment, from
Halifax (then in its capacity as the Seller) of a portion of its beneficial
interest in the Mortgages Trust on 17 October 2006 in accordance with the Seller
Mortgages Trust Assignment Agreement; and

(b) as at the Programme Date, £5,411,550,100 and the Initial Funding 2 Share
Percentage expressed as a percentage of the Trust Property was at the Programme
Date 11.76 per cent.

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6. ACQUISITION BY SELLER OF AN INTEREST RELATING TO CAPITALISED INTEREST

6.1 Any increase in the Outstanding Principal Balance of a Loan due to
Capitalised Interest will be allocated to the Funding 1 Share of the Trust
Property, the Funding 2 Share of the Trust Property and the Seller Share of the
Trust Property, based on respectively the Funding 1 Share Percentage, the
Funding 2 Share Percentage and the Seller Share Percentage in the Trust Property
as calculated on the most recent Calculation Date.

6.2 Prior to an Insolvency Event occurring in respect of the Seller, on each
Distribution Date the Seller shall make a cash payment to Funding 1 and to
Funding 2 in an amount equal to Funding 1’s share and Funding 2’s share of the
Capitalised Interest in respect of those Loans that are subject to Payment
Holidays. As a result of making such payment the Seller Share of the Trust
Property will increase by an amount equal to the amount paid to Funding 1 for
Funding 1’s share of the Capitalised Interest and Funding 2 for Funding 2’s
share of the Capitalised Interest and the Funding 1 Share of the Trust Property
and the Funding 2 Share of the Trust Property (respectively) will decrease by a
corresponding amount. The cash payment shall be made in accordance with Clause
6.4 below.

6.3 If an Insolvency Event occurs in respect of the Seller, then the Seller may
acquire from Funding 1 and Funding 2 each of their respective shares of the
Capitalised Interest in the same manner as is contemplated in Clause 6.2, but it
is not obliged to do so.

6.4 In respect of the cash payment to be made by the Seller pursuant to Clause
6.2, the Seller hereby directs the Mortgages Trustee to deduct from the Seller’s
Share of the Mortgages Trust Available Revenue Receipts (allocated to the Seller
pursuant to Clause 10.2 of this Deed) an amount equal to such cash payment and
to pay the same to Funding 1 and Funding 2 in satisfaction of the Seller’s
obligations under Clause 6.2. To the extent that the Seller’s Share of the
Mortgages Trust Available Revenue Receipts is less than the amount required to
be paid by it pursuant to Clause 6.2, then the Seller shall pay an amount equal
to the shortfall directly to Funding 1 and Funding 2 from its own resources.

7. PAYMENT BY THE SELLER, FUNDING 1 AND/OR FUNDING 2 TO FUNDING 1 OR FUNDING 2
OF THE AMOUNT OUTSTANDING UNDER AN INTERCOMPANY LOAN OR THE MASTER INTERCOMPANY
LOAN

7.1 Conditions precedent to acceptance of offer

(a) On each occasion that the Seller or Funding 2 (as applicable) offers to make
a payment to Funding 1 of the amount outstanding under an Intercompany Loan
(referred to in this Clause 7.1(a) as the relevant Intercompany Loan), then
Funding 1 may accept that offer but only if:

(i) the Funding 1 Security Trustee has received written confirmation from each
of the Rating Agencies that the then current ratings of the Notes issued by a
Funding 1 Issuer would not be withdrawn, qualified or downgraded by Funding 1
accepting the offer;

(ii) Funding 1 would receive the payment from the Seller or Funding 2 (as
applicable) on a Funding 1 Interest Payment Date; and

(iii) Funding 1 will apply the proceeds of the payment to repay the relevant
Intercompany Loan and the relevant Funding 1 Issuer has confirmed to Funding 1
that on that

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  Funding 1 Interest Payment Date it will use the proceeds of the relevant
payment to repay the corresponding classes of Notes.

(b) On each occasion that the Seller or Funding 1 (as applicable) offers to make
a payment to Funding 2 of the amount outstanding under a Loan Tranche (other
than a Start-Up Loan Tranche) (referred to in this Clause 7.1(b) as the relevant
Loan Tranche), then Funding 2 may accept that offer but only if:

(i) the Funding 2 Security Trustee has received written confirmation from each
of the Rating Agencies that the then current ratings of the Notes issued by the
Master Issuer would not be withdrawn, qualified or downgraded by Funding 2
accepting the offer;

(ii) (except in the case of a Subordinated Loan Tranche) Funding 2 would receive
the payment from the Seller or Funding 1 (as applicable) on a Funding 2 Interest
Payment Date; and

(iii) Funding 2 will apply the proceeds of the payment to repay the relevant
Loan Tranche and the Master Issuer has confirmed to Funding 2 that on that
Funding 2 Interest Payment Date or (in the case of a Subordinated Loan Tranche)
such other applicable London Business Day that it will use the proceeds of the
relevant payment to repay the corresponding Series and Class of Notes or the
relevant Master Issuer Subordinated Loan (as applicable).

7.2 Adjustment to shares if offer accepted

(a) If Funding 1 accepts the offer as described in Clause 7.1(a) above, then the
Funding 1 Share of the Trust Property shall decrease by an amount corresponding
to the amount paid by the Seller or Funding 2 (as applicable) and the Seller
Share of the Trust Property or the Funding 2 Share of the Trust Property (as
applicable) shall increase by the same amount.

(b) If Funding 2 accepts the offer as described in Clause 7.1(a) above, then the
Funding 2 Share of the Trust Property shall decrease by an amount corresponding
to the amount paid by the Seller or Funding 1 (as applicable) and the Seller
Share of the Trust Property or the Funding 1 Share of the Trust Property (as
applicable) shall increase by the same amount.

8. ADJUSTMENT OF FUNDING 1 SHARE PERCENTAGE, FUNDING 2 SHARE PERCENTAGE AND
SELLER SHARE PERCENTAGE ON CALCULATION DATES

8.1 Distribution

On each Calculation Date and on the date that the Mortgages Trust terminates,
excluding, for the avoidance of doubt, the Initial Closing Date and Programme
Date, the Funding 1 Share Percentage, the Funding 2 Share Percentage and the
Seller Share Percentage will be recalculated by the Cash Manager (on behalf of
the Mortgages Trustee and the Beneficiaries) based on the aggregate Outstanding
Principal Balance of the Loans constituting the Trust Property (as adjusted from
time to time) as at (i) the immediately preceding calendar month end or (ii) the
close of business on the London Business Day immediately preceding that
Calculation Date, whichever occurs later. On each Distribution Date, the
Mortgages Trustee will distribute Principal Receipts and Revenue Receipts in
accordance with Clauses 10 and 11 hereof.

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8.2 Current Funding 1 Share Percentage and Current Funding 2 Share Percentage

On each Calculation Date (the relevant Calculation Date) or on the date that the
Mortgages Trust terminates, the Current Funding 1 Share Percentage and the
Current Funding 2 Share Percentage will be recalculated and the recalculated
amount will take effect from the next Distribution Date immediately succeeding
the next following Calculation Date. The “Current Funding 1 Share Percentage”
and the “Current Funding 2 Share Percentage” will in each case (as applicable)
be an amount, expressed as a percentage (calculated to an accuracy of five
decimal places (rounded upwards)), equal to:

 
A - B - C + D + E + F
G
X 100

where,

A = the Current Funding 1 Share or the Current Funding 2 Share (as applicable)
as calculated on the immediately preceding Calculation Date (or, in the case of
the first Calculation Date, the Initial Funding 1 Share as at the Initial
Closing Date and, in the case of the first Calculation Date following the
Programme Date, the Initial Funding 2 Share as at the Programme Date) (as
applicable);

B = the amount of any Principal Receipts to be distributed to Funding 1 or
Funding 2 (as applicable), on the Distribution Date immediately following the
relevant Calculation Date in accordance with the provisions described in Clause
11 below;

C = the amount of any Losses sustained on the Loans in the period from the
immediately preceding Calculation Period and the amount of any reductions
occurring in respect of the Loans as described in paragraphs (i) of Clause
8.4(a), in each case allocated to Funding 1 or Funding 2 (as applicable) in the
immediately preceding Calculation Period;

D = an amount equal to any consideration to be paid by Funding 1 or Funding 2
(as applicable) to the Seller in relation to any New Loans to be sold to the
Mortgages Trustee on the relevant Calculation Date;

E = an amount equal to any consideration to be paid by Funding 1 or Funding 2,
(as applicable) to the Seller, Funding 2 or Funding 1 (as applicable) in
relation to any acquisition by Funding 1 or Funding 2 (as applicable) from the
Seller, Funding 2 or Funding 1 (as applicable) on such Calculation Date of an
interest in the Trust Property;

F = an amount equal to any Capitalised Interest accruing on a Loan due to
Borrowers taking Payment Holidays and which has been allocated to Funding 1 or
Funding 2 (as applicable) since the immediately preceding Calculation Date, less
the amount to be paid by the Seller to Funding 1 and Funding 2 on the relevant
Distribution Date to acquire an interest in the Trust Property in accordance
with Clause 6 above; and

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G = the aggregate Outstanding Principal Balance of all the Loans constituting
the Trust Property as at the relevant Calculation Date including after making or
provisioning for the distributions, allocations and additions referred to in
(B), (C), (D), (E) and (F) above, and after taking account of any distributions
of Principal Receipts to Funding 1, Funding 2 and the Seller, the amount of any
Losses allocated to Funding 1, Funding 2 and the Seller, the amount of any
increase in the balances of the Loans constituting the Trust Property due to
capitalisation of insurance premiums due by Borrowers or Borrowers taking
Payment Holidays under Loans, the adjustments referred to in paragraphs (i) to
(iv) (inclusive) of Clause 8.4(a) below (or, if the Seller Share is zero, the
adjustments referred to in paragraph (i) only) and the amount of any other
additions or subtractions to the Trust Property since the immediately preceding
Calculation Date.

8.3 Current Funding 1 Share and Current Funding 2 Share

The “Current Funding 1 Share” and the “Current Funding 2 Share” will be an
amount equal to:

A – B – C + D + E + F

where “A”, “B”, “C”, “D”, “E” and “F” have the meanings specified in Clause 8.2
above.

8.4 Adjustments to Trust Property

(a) On each relevant Calculation Date, the aggregate Outstanding Principal
Balance of the Loans constituting the Trust Property shall be reduced or, as the
case may be, deemed to be reduced for the purposes of the calculation set out in
“G” in Clause 8.2 above, if any of the following events has occurred during the
Calculation Period immediately preceding the relevant Calculation Date:

(i) any Borrower exercises a right of set-off in relation to Loans constituting
part of the Trust Property so that the amount of principal and/or interest owing
under a Loan is reduced but no corresponding amount is received by the Mortgages
Trustee in which event the total amount of Trust Property shall be reduced by an
amount equal to the amount set-off; and/or

(ii) a Loan or its Related Security (i) is in breach of the Loan Warranties in
the Mortgage Sale Agreement, (ii) is the subject of a Further Advance or (iii)
is the subject of a Product Switch in the circumstances set out in Clause 8.4 of
the Mortgage Sale Agreement or other obligation of the Seller to repurchase, and
if the Seller fails to repurchase the Loan or Loans under the relevant Mortgage
Account and their Related Security as required by the terms of the Mortgage Sale
Agreement, then the Trust Property shall be deemed to be reduced for the
purposes of the calculation of “G” in Clause 8.2 above by an amount equal to the
Outstanding Principal Balance of the relevant Loan or Loans under the relevant
Mortgage Account together with Arrears of Interest and Accrued Interest; and/or

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(iii) the Seller would be required by the Mortgages Trustee to repurchase a Loan
and its Related Security in accordance with the terms of the Mortgage Sale
Agreement, but such Loan and its Related Security are not capable of repurchase,
in which case the Trust Property shall be deemed to be reduced for the purposes
of the calculation of “G” in Clause 8.2 above by an amount equal to the
Outstanding Principal Balance of the relevant Loan or Loans under the relevant
Mortgage Account together with Arrears of Interest and Accrued Interest; and/or

(iv) the Seller materially breaches any other material warranty under the
Mortgage Sale Agreement and/or (for so long as it is the Servicer) the Servicing
Agreement, in which event the aggregate Outstanding Principal Balance of Loans
constituting the Trust Property shall be deemed for the purposes of the
calculation of “G” in Clause 8.2 above to be reduced by an amount equivalent to
all losses, costs, liabilities, claims, expenses and damages incurred by the
Beneficiaries as a result of such breach.

(b) The reductions and deemed reductions set out in paragraph (i) to (iv)
(inclusive) of Clause 8.4(a) above shall be made on the relevant Calculation
Date first to the Seller’s Share (including the Minimum Seller Share) of the
Trust Property only, and thereafter shall be made pro rata to the Funding 1
Share and the Funding 2 Share of the Trust Property.

(c) If at any time after the Initial Closing Date the Mortgages Trustee holds,
or there is held to its order, or it receives, or there is received to its
order, any property, interest, right or benefit relating to any Loan and its
Related Security which is or has been subject to any reduction or deemed
reduction pursuant to paragraphs (i) to (iv) (inclusive) of Clause 8.4(a) above,
then such property, interest, right or benefit shall constitute a Revenue
Receipt under the relevant Loan. Such Revenue Receipt shall belong pro rata to
Funding 1 and Funding 2 (but only if and to the extent that the related
reductions were applied against the Funding 1 Share and the Funding 2 Share of
the Trust Property respectively) and thereafter shall belong to the Seller.

8.5 Current Seller Share Percentage

On each Calculation Date, the Current Seller Share Percentage will be an amount
calculated to the accuracy of five decimal places equal to:

100% – (Current Funding 1 Share Percentage + Current Funding 2 Share Percentage
(each as calculated on such Calculation Date)).

8.6 Current Seller Share

The Current Seller Share will be an amount equal to:

Outstanding Principal Balance of all the Loans in the Trust Property on the
relevant Calculation Date – (Current Funding 1 Share + Current Funding 2 Share
(each as calculated on such Calculation Date)).

8.7 Funding 1 Share/Funding 2 Share/Seller Share

None of the Funding 1 Share, the Funding 2 Share or the Seller Share may be
reduced below zero. At all times the sum of the Funding 1 Share Percentage, the
Funding 2 Share Percentage and the Seller Share Percentage shall be equal to 100
per cent. of the Trust Property (each as calculated on the most recent
Calculation Date).

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9. MINIMUM SELLER SHARE

9.1 Initial Minimum Seller Share

Subject to the provisions of Clause 12, the Seller Share of the Trust Property
includes an amount equal to the Minimum Seller Share. Unless and until both the
Funding 1 Share and the Funding 2 Share of the Trust Property are in an amount
equal to zero or an Asset Trigger Event occurs, the Seller will not be entitled
to receive Principal Receipts which would reduce the Seller Share of the Trust
Property to an amount less than the Minimum Seller Share and the Seller consents
and directs the Mortgages Trustee accordingly.

9.2 Fluctuation of Minimum Seller Share on each Calculation Date

At the Initial Closing Date, the Minimum Seller Share was £505,862,790.74. The
amount of the Minimum Seller Share will be recalculated on each Calculation Date
in accordance with the following formula:

X + Y + Z

where:

X = 7.5% of the aggregate Outstanding Principal Balance of all Loans comprised
in the Trust Property;

Y = the product of: (p x q) x r where:

  p = 8%;

  q = the sum of (a) the Flexible Draw Capacity, being an amount equal to the
excess of (i) the maximum amount that Borrowers are entitled to draw under
Flexible Loans included in the Trust Property (whether or not drawn) over (ii)
the aggregate principal balance of Flexible Loans in the Trust Property on the
relevant Calculation Date, (b) the Retention Draw Capacity, being an amount
equal to the excess of (i) the maximum amount that Borrowers are entitled to
draw under Retention Loans included in the Trust Property (whether or not drawn)
over (ii) the aggregate principal balance of Retention Loans in the Trust
Property on the relevant Calculation Date, (c) the Home Cash Reserve Draw
Capacity, being an amount equal to the excess of (i) the maximum amount that
Borrowers may draw under loans with a Home Cash Reserve included in the Trust
Property (whether drawn or not drawn) over (ii) the aggregate principal balance
of loans with a Home Cash Reserve in the Trust Property on the Relevant
Calculation Date, and (d) the Delayed Cashback Draw Capacity, being an amount
equal to the excess of (i) the maximum amount that Borrowers may draw under
loans with a Delayed Cashback included in the Trust Property (whether drawn or
not drawn) over (ii) the aggregate principal balance of loans with a Delayed
Cashback in the Trust Property on the Relevant Calculation Date; and

  r = 3; and

Z = the aggregate sum of reductions deemed made (if any) in accordance with
paragraphs(ii), (iii) and (iv) of Clause 8.4(a).

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9.3 Recalculation of Minimum Seller Share following occurrence of exceptional
events

Prior to the occurrence of a Trigger Event:

(a) the calculation of the Minimum Seller Share in accordance with Clause 9.2
above will be recalculated or increased (in consultation with the relevant
Rating Agencies) if the Seller merges or otherwise combines its business with
another bank or other financial institution so as to increase the risks
associated with Borrowers holding deposits in Bank of Scotland accounts and such
merger or combination would adversely affect the then current ratings of the
Notes of the Funding 1 Issuers and/or the Notes of the Master Issuer and such
adverse effect on the then current ratings of the Notes of the Funding 1 Issuers
and/or the Notes of the Master Issuer would be avoided if the Minimum Seller
Share was so recalculated or increased;

(b) the calculation of the Minimum Seller Share in accordance with Clause 9.2
above will be recalculated or increased (in consultation with the relevant
Rating Agencies) if notice has been received from one or more of the Rating
Agencies that the then current ratings of the Notes of the Funding 1 Issuers
and/or the Notes of the Master Issuer would be downgraded and that such
downgrade would be avoided if the Minimum Seller Share was so recalculated or
increased;

(c) the amount of the Minimum Seller Share as calculated in accordance with
Clause 9.2 above will be decreased (and the calculation thereof amended
accordingly) from time to time at the request of any of the Seller, Funding 1 or
Funding 2 (acting reasonably) provided that the Funding 1 Security Trustee has
received written confirmation from each of the Rating Agencies that there would
be no adverse effect on the then current ratings of the Notes of the Funding 1
Issuers as a result thereof and the Funding 2 Security Trustee has received
written confirmation from each of the Rating Agencies that there would be no
adverse effect on the then current ratings of the Notes of the Master Issuer as
a result thereof;

(d) the amount of “X” in the calculation of the Minimum Seller Share as
calculated in accordance with Clause 9.2 will be recalculated to such amount as
the Rating Agencies may require in order that there is no adverse effect on the
then current ratings of the Notes of the Funding 1 Issuers as a result thereof
and the Funding 2 Security Trustee has received written confirmation from each
of the Rating Agencies that there would be no adverse effect on the then current
ratings of the Notes of the Master Issuer as a result thereof in the event that
the Seller ceases to be assigned a long-term unsecured, unsubordinated,
unguaranteed debt obligation rating by Moody’s of at least Baa3, by S&P’s of at
least BBB- or by Fitch of at least BBB-.

10. ALLOCATION AND DISTRIBUTION OF REVENUE RECEIPTS

10.1 Allocation and Distribution of Third Party Amounts

Pursuant to the Cash Management Agreement, the Cash Manager (at the direction of
the Mortgages Trustee on behalf of the Beneficiaries at their direction and with
their consent) will deduct, as and when identified, Third Party Amounts from the
Revenue Receipts standing to the credit of the Mortgages Trustee GIC Account,
and pay over the same to the proper recipients thereof. The Mortgages Trustee
and the Beneficiaries hereby consent to such deductions.

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10.2 Allocation and Distribution of Mortgages Trust Available Revenue Receipts

On each Distribution Date the Cash Manager (at the direction of the Mortgages
Trustee and on behalf of the Beneficiaries at their direction and with their
consent) will apply the Mortgages Trust Available Revenue Receipts to meet the
following expenses and payments:

(a) first, in or towards satisfaction pari passu and pro rata according to the
respective amounts thereof of:

  (i) any costs, charges, liabilities and expenses then due or to become due to
the Mortgages Trustee under the provisions of this Deed in the immediately
succeeding Calculation Period or any terms agreed by the Mortgages Trustee with
the Beneficiaries in writing together with VAT thereon as provided herein (if
payable); and

  (ii) any amounts due and payable by the Mortgages Trustee to third parties in
respect of the Mortgages Trust and incurred without breach by the Mortgages
Trustee of the documents to which it is a party and for which payment has not
been provided for elsewhere, (including amounts due to H.M Revenue and Customs
or any other taxation authority which has jurisdiction over the Trust Property
or the Mortgages Trustee in respect of any stamp, issue, registration,
documentary and other fees, duties and taxes (including interest and penalties)
payable by the Mortgages Trustee in connection with (i) the execution and
delivery of this Deed; (ii) any action to be taken by or on behalf of the
Mortgages Trustee to enforce or to resolve any doubt concerning or, for any
other purpose in relation to, the Mortgages Trust Deed; and (iii) any such tax
which is primarily due from any or all of the Beneficiaries (and, for the
avoidance of doubt, only in such capacities) in circumstances where the
Mortgages Trustee has made a payment of such tax (or part thereof) by reason of
a failure by the relevant Beneficiary to discharge their primary liability in
respect of such tax;

(b) second, in or towards satisfaction pari passu and pro rata according to the
respective amounts thereof of:

  (i) any amounts then due and payable by the Mortgages Trustee to the Servicer
and any costs, charges, liabilities and expenses then due or to become due to
the Servicer from the Mortgages Trustee in the immediately succeeding
Calculation Period under the provisions of the Servicing Agreement, together
with VAT thereon as provided therein (if payable);

  (ii) any amounts then due and payable by the Mortgages Trustee to the Account
Bank and any costs, charges, liabilities and expenses then due or to become due
to the Account Bank from the Mortgages Trustee in the immediately succeeding
Calculation Period under the provisions of the Bank Account Agreement, together
with VAT thereon as provided therein (if payable); and

  (iii) any amounts then due and payable by the Mortgages Trustee to the
Mortgages Trustee Corporate Services Provider and any costs, charges,
liabilities and expenses then due or to become due to the Mortgages Trustee
Corporate Services Provider from the Mortgages Trustee in the immediately
succeeding Calculation Period under the provisions of the Mortgages Trustee
Corporate Services Agreement, together with VAT thereon as provided therein (if
payable);

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(c) third, to allocate to the Beneficiaries and pay such amounts pari passu and
pro rata according to the respective amounts due:

  (i) to Funding 1 an amount equal to the amount determined by multiplying the
total amount of the remaining Mortgages Trust Available Revenue Receipts by the
Funding 1 Share Percentage of the Trust Property (as determined on the Relevant
Share Calculation Date); and

  (ii) to Funding 2 an amount equal to the amount determined by multiplying the
total amount of the remaining Mortgages Trust Available Revenue Receipts by the
Funding 2 Share Percentage of the Trust Property (as determined on the Relevant
Share Calculation Date);

(d) fourth, to allocate and distribute to the Mortgages Trustee and/or Funding 1
and/or Funding 2 (as applicable), an amount equal to any Loss Amount suffered or
incurred by it or them (as applicable); and

(e) fifth, to allocate and distribute to the Seller an amount (if positive)
which shall equal to the Mortgages Trust Available Revenue Receipts less the
amount of such Mortgages Trust Available Revenue Receipts applied and/or
allocated under paragraphs (a) to (d) above.

11. ALLOCATION AND DISTRIBUTION OF PRINCIPAL RECEIPTS

11.1 Allocation and Distribution of Principal Receipts

(a) On each Calculation Date (the relevant Calculation Date), prior to
distributing any Principal Receipts, the Cash Manager shall ascertain:

(i) the amount of Mortgages Trust Available Principal Receipts;

(ii) whether the Distribution Date immediately succeeding the relevant
Calculation Date is within a Cash Accumulation Period relating to a Bullet Term
Advance (in the case of Funding 1), a Bullet Loan Tranche (in the case of
Funding 2) or a Scheduled Amortisation Instalment (in the case of Funding 1
and/or Funding 2) (the Cash Accumulation Period being calculated separately for
each Bullet Term Advance, Bullet Loan Tranche and Scheduled Amortisation
Instalment); and

(iii) the Cash Accumulation Requirement and Repayment Requirement for each of
Funding 1 and Funding 2.

(b) On each Distribution Date, the Cash Manager (at the direction of the
Mortgages Trustee acting on behalf of the Beneficiaries at their direction and
with their consent) shall then allocate and distribute Principal Receipts as
provided in this Clause 11.

11.2 Allocation and Distribution of Principal Receipts prior to the occurrence
of a Trigger Event

On each Distribution Date where no Trigger Event has occurred on or before the
immediately preceding Calculation Date, the Cash Manager shall allocate the
Mortgages Trust Available Principal Receipts to the Beneficiaries and distribute
such amounts as follows:

(a) first, pari passu and pro rata according to the respective amounts due:

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  (i) to Funding 1 an amount equal to the lesser of:

    (A) an amount determined by multiplying the total amount of the Mortgages
Trust Available Principal Receipts by the Funding 1 Share Percentage of the
Trust Property (as determined on the Relevant Share Calculation Date); and

    (B) an amount up to but not exceeding Funding 1’s Cash Accumulation
Requirement on that Distribution Date;

  (ii) to Funding 2 an amount equal to the lesser of:

    (A) an amount determined by multiplying the total amount of the Mortgages
Trust Available Principal Receipts by the Funding 2 Share Percentage of the
Trust Property (as determined on the Relevant Share Calculation Date); and

    (B) an amount up to but not exceeding Funding 2’s Cash Accumulation
Requirement on that Distribution Date;

(b) second, pari passu and pro rata according to the respective amounts due, to
Funding 1 and Funding 2, to the extent not already paid pursuant to item (a)
above, up to the amounts set forth in items (a)(i)(B) and (a)(ii)(B) above,
respectively;

(c) third, pari passu and pro rata according to the respective amounts due:

  (i) to Funding 1 an amount equal to the lesser of:

    (A) an amount determined by multiplying the total amount of the remaining
Mortgages Trust Available Principal Receipts by the Funding 1 Share Percentage
of the Trust Property (as determined on the Relevant Share Calculation Date);
and

    (B) an amount up to but not exceeding Funding 1’s Repayment Requirement on
that Distribution Date;

  (ii) to Funding 2 an amount equal to the lesser of:

    (A) an amount determined by multiplying the total amount of the remaining
Mortgages Trust Available Principal Receipts by the Funding 2 Share Percentage
of the Trust Property (as determined on the Relevant Share Calculation Date);
and

    (B) an amount up to but not exceeding Funding 2’s Repayment Requirement on
that Distribution Date;

(d) fourth, pari passu and pro rata according to the respective amounts due, to
Funding 1 and Funding 2, to the extent not already paid pursuant to item (c)
above, up to the amounts set forth in items (c)(i)(B) and (c)(ii)(B) above,
respectively;

(e) fifth, to allocate the remainder of the Mortgages Trust Available Principal
Receipts, if any, to the Seller until the Seller Share of the Trust Property (as
calculated on the Relevant Share Calculation Date) is equal to the Minimum
Seller Share.

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PROVIDED THAT, in relation to items (a) through (e) above, the following rules
will apply:

(1) The amount of Mortgages Trust Available Principal Receipts to be allocated
and paid to:

  (i) Funding 1 on a Distribution Date will be reduced by an amount equal to (a)
the aggregate of Funding 1 Available Revenue Receipts which are to be applied on
the immediately succeeding Funding 1 Interest Payment Date in reduction of
deficiencies on the Principal Deficiency Ledger less (b) the amount by which any
Mortgages Trust Available Principal Receipts previously allocated to Funding 1
in the current Interest Period have been reduced in accordance with (1)(i)(a)
above, PROVIDED THAT the aggregate of the Mortgages Trust Available Principal
Receipts previously allocated to Funding 1 in the current Interest Period, the
Mortgages Trust Available Principal Receipts to be allocated and paid to Funding
1 on that Distribution Date (assuming for such purpose that such reduction will
be made) and the Funding 1 Available Revenue Receipts which are to be applied on
the immediately succeeding Funding 1 Interest Payment Date in reduction of
deficiencies on the Principal Deficiency Ledger is at least equal to the
aggregate of the Funding 1 Cash Accumulation Requirement and the Funding 1
Repayment Requirement; and

  (ii) Funding 2 on a Distribution Date will be reduced by an amount equal to
(a) the aggregate of Funding 2 Available Revenue Receipts which are to be
applied on the immediately succeeding Funding 2 Interest Payment Date in
reduction of deficiencies on the Funding 2 Principal Deficiency Ledger less (b)
the amount by which any Mortgages Trust Available Principal Receipts previously
allocated to Funding 2 in the current Interest Period have been reduced in
accordance with (1)(ii)(a) above, PROVIDED THAT the aggregate of the Mortgages
Trust Available Principal Receipts previously allocated to Funding 2 in the
current Interest Period, the Mortgages Trust Available Principal Receipts to be
allocated and paid to Funding 2 on that Distribution Date (assuming for such
purpose that such reduction will be made) and the Funding 2 Available Revenue
Receipts which are to be applied on the immediately succeeding Funding 2
Interest Payment Date in reduction of deficiencies on the Principal Deficiency
Ledger is at least equal to the aggregate of the Funding 2 Cash Accumulation
Requirement and the Funding 2 Repayment Requirement;

(2) Neither Funding 1 nor Funding 2 will be entitled to have allocated to it
(nor will have allocated to it or receive) in aggregate an amount of Mortgages
Trust Available Principal Receipts on a Distribution Date which is in excess of
the Funding 1 Share or the Funding 2 Share of the Trust Property (as applicable)
on that Distribution Date;

(3) If on any Calculation Date prior to the occurrence of a Trigger Event, the
Seller Share of the Trust Property is equal to or less than the Minimum Seller
Share, the Mortgages Trustee will make provision for that amount which would
have been payable to the Seller if the Seller Share of the Trust Property had
been greater than the Minimum Seller Share and the Seller will not have
allocated to it or receive that amount until such time as the Seller Share of
the Trust Property is greater than the Minimum Seller Share and provided that
(i) the Seller will not receive nor have allocated to it any such amount if a
Non-Asset Trigger Event occurs and is occurring and (ii) if an Asset Trigger
Event occurs and is occurring, the Seller will have allocated to it and will be
paid such amount but only to the extent permitted by the

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  rules governing distribution of Principal Receipts after the occurrence of an
Asset Trigger Event.

11.3 Distribution of Principal Receipts on or after the occurrence of a
Non-Asset Trigger Event but prior to the occurrence of an Asset Trigger Event

On each Distribution Date where a Non-Asset Trigger Event has occurred on or
before the immediately preceding Calculation Date and an Asset Trigger Event has
not occurred on or before that Calculation Date, all Mortgages Trust Available
Principal Receipts shall be allocated to the Beneficiaries and distributed in
the following order by the Cash Manager:

(a) first, to Funding 1 and Funding 2 pari passu and pro rata according to the
Funding 1 Share Percentage and the Funding 2 Share Percentage of the Trust
Property (each as determined on the Relevant Share Calculation Date) until the
Funding 1 Share and the Funding 2 Share of the Trust Property (each as
determined on the Relevant Share Calculation Date) have been reduced to zero;
and

(b) then, the remainder, if any, shall be allocated and paid to the Seller.

11.4 Distribution of Principal Receipts on or after the occurrence of an Asset
Trigger Event

On each Distribution Date where an Asset Trigger Event has occurred on or before
the immediately preceding Calculation Date, all Mortgages Trust Available
Principal Receipts shall be allocated to the Beneficiaries and distributed pari
passu and pro rata by the Cash Manager between Funding 1, Funding 2 and the
Seller according to the Current Funding 1 Share Percentage, the Current Funding
2 Share Percentage and the Current Seller Share Percentage of the Trust Property
(each as calculated on the Relevant Share Calculation Date) respectively until,
the Funding 1 Share and the Funding 2 Share of the Trust Property are zero (and,
for the avoidance of doubt, such payments may reduce the Current Seller Share to
an amount less than the Minimum Seller Share). When the Funding 1 Share and the
Funding 2 Share of the Trust Property are zero, the remaining Mortgages Trust
Available Principal Receipts (if any) shall be allocated to the Seller.

12. ALLOCATION OF LOSSES

Subject as provided in this Deed (and in particular, Clause 8), all Losses
sustained on the Loans during a Calculation Period shall be applied in reducing
pro rata the Funding 1 Share, the Funding 2 Share and the Seller Share of the
Trust Property. Funding 1’s share, Funding 2’s share and the Seller’s share of
the Losses shall be determined by multiplying the Losses in the relevant
Calculation Period by the Current Funding 1 Share Percentage, the Current
Funding 2 Share Percentage and the Current Seller Share Percentage (each as
calculated on the Relevant Share Calculation Date), the product of which shall
be allocated to Funding 1, Funding 2 and the Seller, on each Calculation Date,
in each case prior to calculating the allocation of Mortgages Trustee Available
Principal Receipts on that Calculation Date.

13. NEW BENEFICIARY OF THE MORTGAGES TRUST

On not more than 60 days’ written notice nor less than 20 days’ written notice
to the Mortgages Trustee, Funding 1, Funding 2 and the Seller may direct the
Mortgages Trustee to add a New Beneficiary to the Mortgages Trust. The Mortgages
Trustee shall include such designated entity as a beneficiary of the Mortgages
Trust if Funding 1 (or the Funding 1 Security Trustee) and/or Funding 2 (or the
Funding 2 Security Trustee) notifies the Mortgages Trustee in writing that the
following conditions precedent are satisfied on the date of such inclusion:

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(a) that the Funding 1 Security Trustee and the Funding 2 Security Trustee has
received written confirmation from each of the Rating Agencies that the
inclusion of the New Beneficiary of the Mortgages Trust would not have an
adverse effect on the then current ratings of any outstanding Notes of the
Funding 1 Issuers and the Master Issuer (respectively);

(b) no deficiency is recorded on the Principal Deficiency Ledger or the Funding
2 Principal Deficiency Ledger as at the most recent Funding 1 Interest Payment
Date and Funding 2 Interest Payment Date (respectively);

(c) no Note Event of Default or Intercompany Loan Event of Default or Master
Intercompany Loan Event of Default shall have occurred which is continuing or
unwaived as at the relevant Distribution Date;

(d) requisite amendments have been made to the Transaction Documents to enable
the inclusion of the New Beneficiary to the Mortgages Trust (including, without
limitation, changes to the way in which the Mortgages Trustee will allocate
Mortgages Trust Revenue Receipts and Mortgages Trust Principal Receipts under
this Deed); and

(e) neither the General Reserve Fund nor the Funding 2 General Reserve Fund has
been debited on or before the relevant Distribution Date for the purposes of
curing a Principal Deficiency in respect of the Term Advances (in the case of
Funding 1) or a Principal Deficiency in respect of a Loan Tranche (in the case
of Funding 2) in circumstances where the General Reserve Fund or the Funding 2
General Reserve Fund (respectively) has not been replenished by a corresponding
amount by the date; and

(f) the New Beneficiary, the Mortgages Trustee, Funding 1, Funding 2, the
Funding 1 Security Trustee and/or the Funding 2 Security Trustee (as applicable)
have entered into an assignment agreement to provide for the assignment from the
Seller, Funding 1 and/or Funding 2 (as applicable) of a portion of their
beneficial interest in the Mortgages Trust to the New Beneficiary.

14. LEDGERS

The Mortgages Trustee shall maintain, or shall procure that there are
maintained, the following Mortgages Trustee Ledgers:

(a) the Principal Ledger, which shall record all receipts of Principal Receipts
and distribution of the same to Funding 1, Funding 2 and the Seller;

(b) the Revenue Ledger, which shall record all receipts of Revenue Receipts and
distribution of the same to Funding 1, Funding 2 and the Seller;

(c) the Losses Ledger, which shall record Losses in relation to the Loans; and

(d) the Funding 1 Share/Funding 2 Share/Seller Share Ledger which shall record
the Current Funding 1 Share, the Current Funding 2 Share, the Current Seller
Share of the Trust Property, the Current Funding 1 Share Percentage, the Current
Funding 2 Share Percentage and the Current Seller Share Percentage.

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15. COSTS AND EXPENSES OF THE MORTGAGES TRUSTEE

The Mortgages Trustee shall be entitled to charge and be remunerated for the
work undertaken by it as trustee of the trusts created by this Deed. The
remuneration shall be on such terms (if any) as the Mortgages Trustee may from
time to time agree with the Beneficiaries in writing. The Beneficiaries shall
indemnify the Mortgages Trustee from time to time with such regularity as is
reasonably agreed between the parties, for the documentable costs and expenses
directly and properly incurred by the Mortgages Trustee in performing its
obligations hereunder together with any amounts in respect of Irrecoverable VAT
incurred in respect of such costs and expenses. The cost of such indemnity shall
be paid in accordance with the priority of payments set out in Clause 10.2 of
this Deed.

16. DIRECTIONS FROM BENEFICIARIES

16.1 On the Initial Closing Date, the Mortgages Trustee entered into the
Servicing Agreement, the Cash Management Agreement, the Mortgage Sale Agreement,
the Mortgages Trustee Guaranteed Investment Contract and the Bank Account
Agreement.

16.2 Subject to Clauses 16.3 and 16.4 below and to the Controlling Beneficiary
Deed and any other agreement between the Beneficiaries, the Beneficiaries direct
the Mortgages Trustee to, and the Mortgages Trustee covenants with the
Beneficiaries that the Mortgages Trustee shall, take all necessary steps and do
everything which the Beneficiaries (acting together) may reasonably request or
direct it to do in order to give effect to the terms of this Deed or the other
Transaction Documents to which the Mortgages Trustee is a party, provided that
at any time after the Funding 1 Share or the Funding 2 Share of the Trust
Property have been reduced to zero the Mortgages Trustee shall be required to
act in accordance with the directions of those of the Beneficiaries (acting
together) with a share of the Trust Property greater than zero.

16.3 Each of Funding 1, Funding 2 and the Seller covenant with each other that
none of them shall direct or request the Mortgages Trustee to do any act or
thing which breaches the terms of, or is otherwise expressly dealt with (such
that the Mortgages Trustee has no discretion) by, any of the Transaction
Documents.

16.4 Subject to the Controlling Beneficiary Deed and any other agreement between
the Beneficiaries, in the event of any conflict between the directions of the
Funding Beneficiaries or the directions of the Funding Beneficiaries and of the
Seller, then each Beneficiary irrevocably agrees that the Controlling Directions
(as defined in the Controlling Beneficiary Deed) shall apply and that the
Mortgages Trustee will be bound to follow the Controlling Directions as if the
Controlling Directions were the direction of all of the Beneficiaries but if
there are no Controlling Directions the Mortgages Trustee will not be bound to
accept the directions of one Beneficiary over the other.

16.5 The Mortgages Trustee will not be bound and shall have no power to take any
proceedings, actions or steps under or in connection with any of this Deed or
the other Transaction Documents to which it is a party unless:

(a) it shall have been directed to do so by the Beneficiaries or it is required
to do so under any express provision of this Deed or the other Transaction
Documents (but subject to Clauses 16.2 and 16.4 in respect of conflict of
directions); and

(b) it shall have been indemnified to its satisfaction against all liabilities,
proceedings, claims and demands to which it may be or become liable and all
costs, charges and expenses which may be incurred by it in connection therewith
and the terms of such

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  indemnity may include the provision of a fighting fund, non-recourse loan or
other similar arrangement.

16.6 Covenant of the Mortgages Trustee

Subject to Clauses 16.2 and 16.4, the Mortgages Trustee covenants with each of
the Seller, Funding 1 and Funding 2 to exercise all of its rights arising under
the Trust Property (including without limitation any rights of enforcement) for
the benefit of and on behalf of the Beneficiaries.

17. TRANSFERS

17.1 Funding 1 shall not assign

Subject to the terms of the Transaction Documents (including for the avoidance
of doubt, the Funding 1 Deed of Charge, the Deed of Accession and Release
Supplemental to the Funding 1 Deed of Charge, the Second Supplemental Funding 1
Deed of Charge and each Deed of Accession) and the right of Funding 1 (or the
Funding 1 Security Trustee or a Receiver on its behalf) to sell the Funding 1
Share of the Trust Property following the service of an Intercompany Loan
Acceleration Notice (which right is hereby conferred), Funding 1 covenants with
each of the Seller and Funding 2 that it shall not, and shall not purport to,
sell, assign, transfer, convey, charge, declare a trust over, create any
beneficial interest in, or otherwise dispose of the Funding 1 Share in the Trust
Property and/or its rights under this Deed, or any of Funding 1’s rights, title
and interest or benefit in the Trust Property and/or this Deed to or in favour
of a third party.

17.2 Funding 2 shall not assign

Subject to the terms of the Transaction Documents (including for the avoidance
of doubt, the Funding 2 Deed of Charge) and the right of Funding 2 (or the
Funding 2 Security Trustee or a Receiver on its behalf) to sell the Funding 2
Share of the Trust Property following the service of a Master Intercompany Loan
Acceleration Notice (which right is hereby conferred), Funding 2 covenants with
each of the Seller and Funding 1 that it shall not, and shall not purport to,
sell, assign, transfer, convey, charge, declare a trust over, create any
beneficial interest in, or otherwise dispose of the Funding 2 Share in the Trust
Property and/or its rights under this Deed, or any of Funding 2’s rights, title
and interest or benefit in the Trust Property and/or this Deed to or in favour
of a third party.

17.3 Seller shall not assign

Subject to the terms of the Transaction Documents, the Seller covenants with
each of Funding 1 and Funding 2 that it shall not, and shall not purport to,
sell, assign, transfer, convey, charge, declare a trust over, create any
beneficial interest in, or otherwise dispose of the Seller Share in the Trust
Property and/or its rights under this Deed or any of the Seller’s rights, title
and interest or benefit in the Trust Property and/or this Deed to or in favour
of a third party, without the prior consent of Funding 1 and Funding 2 (such
consent not to be unreasonably withheld).

17.4 Transfers to New Beneficiary

Subject to Clause 13, the parties hereby acknowledge that a designated entity
approved by the Beneficiaries may become a beneficiary to the Mortgages Trust
after the Programme Date and if such entity is to become such a beneficiary then
the Beneficiaries covenant with each other that the Seller and/or Funding 1
and/or Funding 2 shall be entitled to sell, assign, transfer,

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convey, charge, declare a trust over, create a beneficial interest in, or
otherwise dispose of all or part of their respective shares in the Trust
Property to such entity or, as the case may be, Funding 1, Funding 2 or the
Seller.

18. COVENANTS OF THE MORTGAGES TRUSTEE

Save with the prior written consent of each of the Beneficiaries or as provided
in or envisaged by this Deed and the other Transaction Documents to which the
Mortgages Trustee is a party, the Mortgages Trustee shall not, so long as it is
acting as Mortgages Trustee hereunder:

  (a) Negative Pledge

  create or permit to subsist any mortgage, standard security, pledge, lien,
charge, assignation in security or other security interest whatsoever (unless
arising by operation of law), upon the whole or any part of its assets
(including any uncalled capital) or its undertakings, present or future;

  (b) Disposal of Assets

  transfer, sell, lend, part with or otherwise dispose of, or deal with, or
grant any option or present or future right to acquire any of its assets or
undertakings or any interest, estate, right, title or benefit therein or thereto
or agree or attempt or purport to do so;

  (c) Equitable Interest

  permit any person other than the Beneficiaries to have any equitable or
beneficial interest in any of its assets or undertakings or any interest,
estate, right, title or benefit therein;

  (d) Bank Accounts

  have an interest in any bank account, other than as set out in the Transaction
Documents;

  (e) Restrictions on Activities

  carry on any business other than as described in this Deed and the Mortgage
Sale Agreement;

  (f) Borrowings

  incur any indebtedness in respect of borrowed money whatsoever or give any
guarantee or indemnity in respect of any such indebtedness;

  (g) Merger

  consolidate or merge with any other person or convey or transfer its
properties or assets substantially as an entirety to any other person;

  (h) Employees or premises

  have any employees or premises or subsidiaries;

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  (i) Further shares

  issue any further shares;

  (j) Acquisitions

  acquire any assets other than pursuant to the terms of the Mortgage Sale
Agreement and this Mortgages Trust Deed (whereby any New Portfolio shall be held
by the Mortgages Trustee subject to the Mortgages Trust); or

  (k) United States activities

  engage in any activities in the United States (directly or through agents) or
derive any income from United States sources as determined under United States
income tax principles or hold any property if doing so would cause it to be
engaged or deemed to be engaged in a trade or business within the United States
as determined under United States tax principles.

19. POWER TO DELEGATE

19.1 Power to delegate

Subject to Clause 19.2, the Mortgages Trustee may (notwithstanding any rule of
law or equity to the contrary) delegate (revocably or irrevocably and for a
limited or unlimited period of time) the performance of all or any of its
obligations and the exercise of all or any of its powers under this Deed or
imposed or conferred on it by law or otherwise to any person or body of persons
fluctuating in number selected by it and any such delegation may be by power of
attorney or in such other manner as the Mortgages Trustee may think fit and may
be made upon such terms and conditions (including the power to sub-delegate) as
the Mortgages Trustee may think fit.

19.2 No further appointments

Notwithstanding the provisions of Clause 19.1, the Mortgages Trustee shall not
appoint any agent, attorney or other delegate having power to act in respect of
the Trust Property unless it is directed in writing to do so by the
Beneficiaries. The appointment of any agent, attorney or other delegate shall
terminate immediately upon the occurrence of a Trigger Event.

20. POWERS OF INVESTMENT

Save as expressly provided for in this Deed, the Mortgages Trustee Guaranteed
Investment Contract and the Bank Account Agreement, the Mortgages Trustee shall
have no further or other powers of investment with respect to the Trust Property
and neither the Trustee Act 2000 nor any other provision relating to trustee
powers of investment implied by statute or general law shall apply to the
Mortgages Trust and, for the avoidance of doubt, the statutory power to
accumulate income conferred on trustees by Section 31 of the Trustee Act 1925 is
expressly excluded.

21. OTHER PROVISIONS REGARDING THE MORTGAGES TRUSTEE

21.1 No action to impair Trust Property

Except for actions expressly authorised by this Deed, the Mortgages Trustee
shall take no action reasonably likely to impair the interests of the
Beneficiaries in any Trust Property now

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existing or hereafter created or to impair the value of any Loan or its Related
Security subject to the Mortgages Trust.

21.2 Litigation

The Mortgages Trustee must not prosecute or defend any legal or other
proceedings anywhere in the world (at the cost of the Trust Property) unless it
obtains legal or other advice that it is in the interests of the Beneficiaries
to do so.

21.3 No Implied Duties

The duties and obligations of the Mortgages Trustee under the Mortgages Trust
shall be determined solely by the express provisions of this Deed (but without
prejudice to the duties and obligations of the Mortgages Trustee under any of
the other Transaction Documents). The Mortgages Trustee shall not be liable
under this Deed except for the performance of such duties and obligations as
shall be specifically set forth in this Deed. No implied covenants or
obligations shall be read into this Deed against the Mortgages Trustee, and the
permissible right of the Mortgages Trustee to do things set out in this Deed
shall not be construed as a duty.

21.4 No Liability

None of the Mortgages Trustee, Funding 1 (in its capacity as a Beneficiary
hereunder), Funding 2 (in its capacity as a Beneficiary hereunder) or the Seller
(in its capacity as a Beneficiary hereunder) shall be liable to any other such
party, in the absence of wilful default, negligence or breach of the terms of
this Deed, in respect of any loss or damage which arises out of the exercise or
attempted or purported exercise or failure to exercise any of their respective
powers.

21.5 Reliance on Certificates

The Mortgages Trustee may rely on and shall be protected in acting on, or in
refraining from acting in accordance with, any resolution, officer’s
certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond or
other paper or document believed by it to be genuine and to have been signed or
presented to it pursuant to the Transaction Documents by the proper party or
parties.

21.6 Reliance on Third Parties

The Mortgages Trustee may, in relation to these presents, act on the opinion or
advice of or a certificate or any information obtained from any lawyer, banker,
valuer, broker, accountant, financial adviser, securities dealer, merchant bank,
computer consultant or other expert in the United Kingdom or elsewhere and shall
not, provided that it shall not have acted fraudulently or in breach of any of
the provisions of the Transaction Documents, be responsible for any loss
occasioned by so acting. Any such opinion, advice, certificate or information
may be sent or obtained by letter, telemessage, telex, cable or facsimile device
and the Mortgages Trustee shall not be liable for acting on any opinion, advice,
certificate or information purporting to be so conveyed although the same shall
contain some error or shall not be authentic, provided that such error or lack
of authenticity shall not be manifest.

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22. NO RETIREMENT OF MORTGAGES TRUSTEE

22.1 No Retirement

The Mortgages Trustee shall not, and shall not purport to, retire as the trustee
of the Mortgages Trust or appoint any additional trustee of the Mortgages Trust
and shall have no power to retire or appoint any additional trustee under the
Trustee Act 1925 or otherwise.

22.2 No Replacement

None of the Seller, Funding 1 or Funding 2 shall at any time remove or purport
to remove and/or replace the Mortgages Trustee as the trustee of the Mortgages
Trust.

22.3 No Termination

Prior to the payment by Funding 1 and Funding 2 of all amounts owing under the
Intercompany Loan Agreements or the Master Intercompany Loan Agreement
(respectively) and any other Transaction Documents, none of the Beneficiaries
shall at any time, except in accordance with the provisions of Clauses 16 and 23
hereof, terminate or purport to terminate the Mortgages Trust and, in
particular, but without prejudice to the generality of the foregoing, none of
the Beneficiaries shall in reliance on their absolute beneficial interests in
the Trust Property call for the transfer to them or vesting in them of the legal
estate in all or any part of the Trust Property.

23. TERMINATION

The Mortgages Trust shall terminate in respect of the Trust Property (if any
then remains) upon the later to occur of:

(a) the date upon which all amounts due from Funding 1 and Funding 2 to the
Funding 1 Secured Creditors and the Funding 2 Secured Creditors (respectively)
have been paid in full; and

(b) any other date agreed in writing by the Beneficiaries.

24. FURTHER ASSURANCES

The parties agree that they will co-operate fully to do all such further acts
and things and execute any further documents as may be necessary or desirable to
give full effect to the arrangements contemplated by this Deed.

25. AMENDMENTS

25.1 Amendments, Waivers and Consents

Subject to Clause 3 of the Controlling Beneficiary Deed and (in the case of
Funding 1) Clause 25.8 of the Funding 1 Deed of Charge and (in the case of
Funding 2) Clause24.8 of the Funding 2 Deed of Charge no amendment or waiver of
any provision of this Deed nor consent to any departure by any of the parties
therefrom shall in any event be effective unless the same shall be in writing
and signed by each of the parties to this Deed. In the case of a waiver or
consent, such waiver or consent shall be effective only in the specific instance
and as against the party or parties giving it for the specific purpose for which
it is given.

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25.2 Entire Agreement

This Deed contains a final and complete integration of all prior expressions by
the parties with respect to the subject matter of this Deed and constitutes the
entire agreement among the parties with respect to the subject matter of this
Deed superseding all prior oral or written understandings other than the other
Transaction Documents.

26. NON PETITION COVENANT

Each of the parties hereto hereby agrees that it shall not institute against
either Funding 1, Funding 2 or the Mortgages Trustee any winding-up,
administration, insolvency or similar proceedings so long as any sum is
outstanding under any Funding 1 Intercompany Loan Agreement (in the case of
Funding 1 and the Mortgages Trustee) or the Master Intercompany Loan Agreement
(in the case of Funding 2 and the Mortgages Trustee) for the duration of one
year plus one day since the last day on which any such sum was outstanding.

27. NO PARTNERSHIP OR AGENCY

Nothing in this Deed shall be taken to constitute or create a partnership
between any of the parties to this Deed or to make or appoint the Seller the
agent of Funding 1 (or vice versa) or the agent of Funding 2 (or vice versa) or
Funding 1 the agent of Funding 2 (or vice versa).

28. CALCULATIONS

In the absence of manifest error, any determination or calculation made by or on
behalf of the Mortgages Trustee in connection with the provisions of this Deed
shall be deemed to be conclusive.

29. NO WAIVER; REMEDIES

No failure on the part of any party to this Deed to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy. The remedies in
this Deed are cumulative and not exclusive of any remedies provided by law.

30. EXECUTION IN COUNTERPARTS/SEVERABILITY

30.1 This Deed may be executed in any number of counterparts (manually or by
facsimile) and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same instrument.

30.2 Where any provision in or obligation under this Deed shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations under this Deed, or of
such provision or obligation in any other jurisdiction, shall not be affected or
impaired thereby.

31. TAX

31.1 Any payment by Funding 1 or Funding 2 to the other or to the Seller to
increase its share of the Trust Property shall be inclusive of VAT (if any).

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31.2 Any payment by the Seller to Funding 1 or Funding 2 which would increase
its share of the Trust Property shall be exclusive of VAT (if any).

31.3 Any stamp duty or stamp duty reserve tax in respect of any increase in the
Funding 1 Share or the Funding 2 Share of the Trust Property shall be payable by
the Seller.

32. CONFIDENTIALITY

32.1 General Obligation of Confidentiality

Unless otherwise required by applicable law, and subject to Clause 32.2 below,
each of the parties agrees not to disclose to any person any information
relating to the business, finances or other matters of a confidential nature of
or relating to any other party to this Deed or any of the Transaction Documents
which it may have obtained as a result of having entered into this Deed or
otherwise.

32.2 Exceptions

The provisions of Clause 32.1 above shall not apply:

(a) to the disclosure of any information to any person who is a party to any of
the Transaction Documents as expressly permitted by the Transaction Documents;

(b) to the disclosure of any information which is or becomes public knowledge
otherwise than as a result of the wrongful conduct of the recipient;

(c) to the extent that the recipient is required to disclose the same pursuant
to any law or order of any court or pursuant to any direction or requirement
(whether or not having the force of law) of any central bank or any governmental
or other regulatory or Taxation authority;

(d) to the disclosure of any information to professional advisers who receive
the same under a duty of confidentiality;

(e) to the disclosure of any information with the consent of the parties to this
Deed;

(f) to the disclosure to the Rating Agencies or any of them of such information
as may be requested by any of them for the purposes of setting or reviewing the
rating assigned to the Notes of any of the Funding 1 Issuers or of the Master
Issuer (or any of them), provided that no information which would disclose the
identity of a Borrower shall be disclosed to the Rating Agencies or any of them;

(g) to the disclosure of any information disclosed to a prospective assignee of
Funding 1 or Funding 2 (provided that it is disclosed on the basis that the
recipient will hold it confidential); or

(h) to any disclosure for the purposes of collecting in or enforcing the Trust
Property or any of it.

33. EXCLUSION OF THIRD PARTY RIGHTS

Except in the case of the Funding 1 Security Trustee and the Funding 2 Security
Trustee as expressly provided hereunder, the parties to this Deed do not intend
that any term of this Deed

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should be enforced, by virtue of the Contracts (Rights of Third Parties) Act
1999, by any person who is not a party to this Deed.

34. ADDRESSES FOR NOTICES

Any notices to be given pursuant to this Deed will be sufficiently served if
sent by prepaid first class post, by hand or facsimile transmission and will be
deemed to be given (in the case of facsimile transmission) when despatched
(where delivered by hand) on the day of delivery if delivered before 17:00 hours
on a London Business Day or on the next London Business Day if delivered
thereafter or (in the case of first class post) when it would be received in the
ordinary course of the post and shall be sent:

(a) in the case of the Seller: to Bank of Scotland plc, Halifax Division, at
Level 3, Lovell Park, 1 Lovell Park Road, Leeds LS1 1NS (facsimile number +44
(020) 1132 357511) for the attention of the Head of Mortgage Securitisation with
a copy to Bank of Scotland plc, Treasury Division, 33 Old Broad Street, London
EC2N 1HZ (facsimile number +44 (0)20 7574 8303) for the attention of Head of
Mortgage Securitisation and Covered Bonds;

(b) in the case of the Mortgages Trustee: to Permanent Mortgages Trustee
Limited, 47 Esplanade, St Helier, Jersey JE1 0BD, Channel Islands (facsimile
number +44 (0) 1534 726391) for the attention of the Company Secretary with a
copy to Bank of Scotland plc, Treasury Division, 33 Old Broad Street, London
EC2N 1HZ (facsimile number +44 (0)20 7574 8303) for the attention of Head of
Mortgage Securitisation and Covered Bonds;

(c) in the case of Funding 1: to Permanent Funding (No. 1) Limited, 35 Great St.
Helen’s, London EC3A 6AP (facsimile number +44 (0) 20 7398 6325) for the
attention of the Secretary with a copy to Bank of Scotland plc, Treasury
Division, 33 Old Broad Street, London EC2N 1HZ (facsimile number +44 (0)20 7574
8303) for the attention of Head of Mortgage Securitisation and Covered Bonds;

(d) in the case of Funding 2: to Permanent Funding (No. 2) Limited, 35 Great St.
Helen’s, London EC3A 6AP (facsimile number +44 (0) 20 7398 6325) for the
attention of the Secretary with a copy to Bank of Scotland plc, Treasury
Division, 33 Old Broad Street, London EC2N 1HZ (facsimile number +44 (0)20 7574
8303) for the attention of Head of Mortgage Securitisation and Covered Bonds;

(e) in the case of the Share Trustee: to 47 Esplanade, St Helier, Jersey JE1
0BD, Channel Islands (facsimile number +44 (0) 1534 726391) for the attention of
the Company Secretary with a copy to Bank of Scotland plc, Treasury Division, 33
Old Broad Street, London EC2N 1HZ (facsimile number +44 (0)20 7574 8303) for the
attention of Head of Mortgage Securitisation and Covered Bonds; and

(f) in each case of the Funding 1 Security Trustee and the Funding 2 Security
Trustee: to The Bank of New York, One Canada Square, London E14 5AL, (facsimile
number +44 (0)20 7964 2533) for the attention of Corporate Trust Administration
– ABS/MBS,

or to such other address or facsimile number or for the attention of such other
person or entity as may from time to time be notified by any party to the others
by written notice in accordance with the provisions of this Clause 34.

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35. GOVERNING LAW AND SUBMISSION TO JURISDICTION

35.1 Governing Law

This Deed is governed by English law.

35.2 Submission to Jurisdiction

Each party to this Deed hereby irrevocably submits to the exclusive jurisdiction
of the English courts in any action or proceeding arising out of or relating to
this Deed, and hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined by such courts. Each party to
this Deed hereby irrevocably waives, to the fullest extent it may possibly do
so, any defence or claim that the English courts are an inconvenient forum for
the maintenance or hearing of such action or proceeding. The Mortgages Trustee
irrevocably appoints Structured Finance Management Limited at 35 Great St.
Helen’s, London EC3A 6AP as its agent for service of process.

36. EXCLUSION OF TRUSTEE ACT 2000

The Trustee Act 2000 is hereby excluded to the maximum extent permissible, to
the intent that it shall not apply to the trusts constituted by this Deed and
that the parties shall be in the same position as they would be had that Act not
come into force.

IN WITNESS of which this Deed has been executed by the parties hereto as a deed
which has been delivered on the date first appearing on page one.

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SIGNATORIES

Seller, Cash Manager and Beneficiary

EXECUTED as a DEED by ) BANK OF SCOTLAND plc ) acting by its attorney ) in the
presence of )     Witness’s Signature:     Name:     Address:         Funding 1
    EXECUTED as a DEED by ) PERMANENT FUNDING (NO. 1) ) LIMITED acting by two
directors )         Funding 2     EXECUTED as a DEED by ) PERMANENT FUNDING (NO.
2) ) LIMITED acting by two directors )         Mortgages Trustee     EXECUTED as
a DEED on behalf of ) PERMANENT MORTGAGES TRUSTEE ) LIMITED, a company
incorporated in Jersey, ) Channel Islands, by ) being a person who, in )
accordance with the laws of that territory is acting ) under the authority of
the company, in the presence ) of: )     Witness’s Signature:     Name:    
Address:

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Share Trustee of the Mortgages Trustee     EXECUTED as a DEED by ) SFM OFFSHORE
) LIMITED ) acting by its attorney ) in the presence of: )     Witness’s
Signature:     Name:     Address:

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