<PAGE>

                                                                     EXHIBIT 4.5

DRAFT: 25/02/03

THIS FIRST DEED OF ACCESSION TO THE FUNDING 1 DEED OF CHARGE is made on [6th
March], 2003 BETWEEN

(1)      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 Blackwell House, Guildhall Yard,
         London EC2V 5AE ("FUNDING 1");

(2)      PERMANENT FINANCING (NO. 1) PLC (registered number 4416192), a public
         limited company incorporated under the laws of England and Wales, whose
         registered office is at Blackwell House, Guildhall Yard, London EC2V
         5AE (the "FIRST ISSUER");

(3)      STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
         organised under the laws of the Commonwealth of Massachusetts, United
         States of America, acting through its office at 225 Franklin Street,
         Boston, Massachusetts 02110, acting as a co-trustee in its capacity as
         Security Trustee;

(4)      U.S. BANK NATIONAL ASSOCIATION, a national banking association formed
         under the laws of the United States of America, acting through its
         office at 1 Federal Street, 3rd Floor, Boston, Massachusetts 02110,
         acting as a co-trustee in its capacity as Security Trustee;

(5)      HALIFAX PLC (registered number 2367076), a public limited company
         incorporated under the laws of England and Wales, whose registered
         office is at Trinity Road, Halifax, West Yorkshire HX1 2RG, acting in
         its capacity as Cash Manager;

(6)      HALIFAX PLC (registered number 2367076), a public limited company
         incorporated under the laws of England and Wales, whose registered
         office is at Trinity Road, Halifax, West Yorkshire HX1 2RG, acting in
         its capacity as Seller;

(7)      THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND, established by an Act
         of the Parliament of Scotland in 1695, as amended, acting through its
         office situated at 116 Wellington Street, Leeds LS1 4LT, acting in its
         capacity as Account Bank;

(8)      THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND, established by an Act
         of the Parliament of Scotland in 1695, as amended, acting through its
         office situated at 116 Wellington Street, Leeds LS1 4LT, England in its
         capacity as Funding 1 GIC Provider;

(9)      HALIFAX PLC (registered number 2367076), a public limited company
         incorporated under the laws of England and Wales, whose registered
         office is at Trinity Road, Halifax, West Yorkshire HX1 2RG acting in
         its capacity as Funding 1 Swap Provider;

(10)     HALIFAX PLC (registered number 2367076), a public limited company
         incorporated under the laws of England and Wales, whose registered
         office is at Trinity Road, Halifax, West Yorkshire HX1 2RG acting in
         its capacity as First Start-up Loan Provider (the "FIRST START-UP LOAN
         PROVIDER") and Second Start-up Loan Provider (the "SECOND START-UP LOAN
         PROVIDER");

(11)     JPMORGAN CHASE BANK acting through its office at 125 London Wall,
         London EC2Y 5AJ, acting in its capacity as Funding 1 Liquidity Facility
         Provider;

(12)     STRUCTURED FINANCE MANAGEMENT LIMITED (registered number 3853947), a
         private limited company incorporated under the laws of England and
         Wales, whose registered


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         office is at Blackwell House, Guildhall Yard, London EC2V 5AE acting in
         its capacity as the Funding 1 Corporate Services Provider; and

(13)     PERMANENT FINANCING (NO. 2) PLC (registered number 4623188), a public
         limited company incorporated under the laws of England and Wales, whose
         registered office is at Blackwell House, Guildhall Yard, London EC2V
         5AE (the "SECOND ISSUER").

WHEREAS

(A)      Pursuant to the terms of an intercompany loan agreement dated [6th
         March], 2003 made between Funding 1 and the Second Issuer (the "SECOND
         ISSUER INTERCOMPANY LOAN AGREEMENT"), the Second Issuer has agreed to
         make the Second Issuer Term Advances available to Funding 1 and Funding
         1 has agreed to secure its obligations and other liabilities to the
         Second Issuer thereunder pursuant to the Funding 1 Deed of Charge.

(B)      Pursuant to the terms of a start-up loan agreement dated [6th March],
         2003 made between Funding 1 and the Second Start-up Loan Provider (the
         "SECOND START-UP LOAN AGREEMENT"), the Second Start-up Loan Provider
         has agreed to make a subordinated loan to Funding 1 and Funding 1 has
         agreed to secure its obligations and other liabilities to the Second
         Start-up Loan provider thereunder pursuant to the Funding 1 Deed of
         Charge.

(C)      Funding 1 has agreed to provide the Security Trustee with the benefit
         of the security described in the Funding 1 Deed of Charge to secure
         Funding 1's obligations to the Funding 1 Secured Creditors.

(D)      The terms of the Funding 1 Deed of Charge permit Funding 1 to secure
         its obligations to a New Funding 1 Secured Creditor thereunder.

(E)      The Second Issuer and the Second Start-up Loan Provider have agreed to
         enter into this Deed to accede to the provisions of the Funding 1 Deed
         of Charge.

(F)      The Funding 1 Secured Creditors have agreed to enter into this Deed to,
         among other things, acknowledge and agree to such accession and to
         permit any consequential changes to the Funding 1 Priority of Payments
         set out in PART I, PART II and PART III of SCHEDULE 3 of the Funding 1
         Deed of Charge as are required and any other amendment as may be
         required to give effect to this Accession Undertaking.

NOW THIS DEED WITNESSES AS FOLLOWS

1.       INTERPRETATION

         The Amended and Restated Master Definitions and Construction Schedule
         signed for the purposes of identification by Allen & Overy and Sidley
         Austin Brown & Wood on [5th March], 2003 (as the same may be amended,
         varied or supplemented from time to time with the consent of the
         parties hereto) are expressly and specifically incorporated into this
         Deed and, accordingly, the expressions defined in the Amended and
         Restated Master Definitions and Construction Schedule (as so amended,
         varied or supplemented) 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 2 of the Amended and Restated Master Definitions and
         Construction Schedule.




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2.       REPRESENTATIONS AND WARRANTIES

2.1      The Second Issuer hereby represents and warrants to the Security
         Trustee and each of the Funding 1 Secured Creditors in respect of
         itself that as of the date of this Deed:

         (a)      pursuant to the terms of the Second Issuer Intercompany Loan
                  Agreement, Funding 1 has agreed to pay to the Second Issuer
                  the amounts set out in the Second Issuer Intercompany Loan
                  Agreement; and

         (b)      the Second Issuer Intercompany Loan Agreement expressly
                  provides that all amounts due from Funding 1 thereunder are to
                  be secured by the Funding 1 Deed of Charge.

2.2      The Second Start-up Loan Provider hereby represents and warrants to the
         Security Trustee and each of the Funding 1 Secured Creditors in respect
         of itself that as of the date of this Deed:

         (a)      pursuant to the terms of the Second Start-up Loan Agreement,
                  Funding 1 has agreed to pay to the Second Start-up Loan
                  Provider the amounts set out in the Second Start-up Loan
                  Agreement; and

         (b)      the Second Start-up Loan Agreement expressly provides that all
                  amounts due from Funding 1 thereunder are to be secured by the
                  Funding 1 Deed of Charge.

2.3      Funding 1 hereby represents and warrants to the Security Trustee and
         each of the Funding 1 Secured Creditors that as at the date of this
         Deed, the conditions to incurring further secured Financial
         Indebtedness set out in CLAUSE 2.2 (New Intercompany Loan Agreements)
         of the Intercompany Loan Terms and Conditions are satisfied.

3.       ACCESSION

         In consideration of the Second Issuer and the Second Start-up Loan
         Provider being accepted as Funding 1 Secured Creditors for the purposes
         of the Funding 1 Deed of Charge by the parties thereto as from the date
         of this Deed, each of the Second Issuer and the Second Start-up Loan
         Provider:

         (a)      confirms that as from the date of this Deed, it intends to be
                  a party to the Funding 1 Deed of Charge as a Funding 1 Secured
                  Creditor;

         (b)      undertakes to comply with and be bound by all of the
                  provisions of the Amended and Restated Master Definitions and
                  Construction Schedule (as the same may be further amended,
                  varied or restated from time to time) and the Funding 1 Deed
                  of Charge in its capacity as a Funding 1 Secured Creditor, as
                  if it had been an original party thereto;

         (c)      undertakes to perform, comply with and be bound by all of the
                  provisions of the Funding 1 Deed of Charge in its capacity as
                  a Funding 1 Secured Creditor, as if it had been an original
                  party thereto as provided in CLAUSE 31.8 (Funding 1 Secured
                  Creditors) (including without limitation CLAUSES 8.4
                  (Priorities of Payment - After Service of an Intercompany Loan
                  Acceleration Notice), 8.5 (Application of Monies Received
                  After Intercompany Loan Acceleration Notice) and 9.2 (No
                  Enforcement by Funding 1 Secured Creditors)); and




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         (d)      agrees that the Security Trustee shall be the Security Trustee
                  of the Funding 1 Deed of Charge for all Funding 1 Secured
                  Creditors upon and subject to the terms set out in the Funding
                  1 Deed of Charge.

4.       SCOPE OF THE FUNDING 1 DEED OF CHARGE

         Funding 1, the Second Issuer, the Second Start-up Loan Provider and the
         Security Trustee hereby agree that for relevant purposes under the
         Funding 1 Deed of Charge and the Amended and Restated Master
         Definitions and Construction Schedule:

         (a)      the Agreement shall be treated as a Funding 1 Agreement; and

         (b)      the Second Issuer and the Second Start-up Loan Provider shall
                  be treated as an Funding 1 Secured Creditors.

5.       AMENDMENT TO THE FUNDING 1 PRIORITY OF PAYMENTS

         The Funding 1 Secured Creditors agree to amend and restate the Funding
         1 Priority of Payments set out in PARTS I, II and III of SCHEDULE 3 of
         the Funding 1 Deed of Charge in accordance with APPENDIX 1 hereto.

6.       FURTHER AMENDMENTS

6.1      CLAUSE 3.5 of the Funding 1 Deed of Charge is hereby amended by the
         insertion of the following words as a new sentence immediately after
         the words "by way of security":

         "The floating charge created hereby is a qualifying floating charge for
         the purpose of paragraph 14 of Schedule B1 of the Insolvency Act 1986."

6.2      CLAUSE 18.2 of the Funding 1 Deed of Charge is hereby amended as
         follows:

         (a)      by the insertion of the words "Subject as set out below,"
                  immediately before the words "In addition and without
                  prejudice to"; and

         (b)      by the insertion of the following as a new paragraph after sub
                  paragraph (b):

                  "The floating charge created by CLAUSE 3.5 of this Deed may
                  not be converted into a fixed charge solely as a result of the
                  obtaining of a moratorium (or anything done with a view to
                  obtaining a moratorium) under the Insolvency Act 2000 except
                  with leave of the court."

6.3      CLAUSE 8.7 of the Funding 1 Deed of Charge is hereby amended by the
         insertion after the words "Following presentation of a petition for an
         administration order in relation to Funding 1" of the following words:

         ", the filing of documents with the court for the appointment of an
         administrator in relation to Funding 1 or the service of a notice of
         intention to appoint an administrator in relation to Funding 1,"


6.4      CLAUSE 13.1 of the Funding 1 Deed of Charge is hereby amended as
         follows:




                                       4
<PAGE>


         (a)      by the re-numbering of the paragraph as SUB-PARAGRAPH (a) and
                  by the insertion of the words "Subject to PARAGRAPH (b) below"
                  at the start thereof; and

         (b)      by the insertion of the following SUB-PARAGRAPH (b):

                  "The Security Trustee may not appoint an administrative
                  receiver, receiver, manager or receiver and manager pursuant
                  to PARAGRAPH (a) above solely as a result of the obtaining of
                  a moratorium (or anything done with a view to obtaining a
                  moratorium) under the Insolvency Act 2000 except with leave of
                  the court."

6.5      CLAUSES 5.1(c) and 5.5 of the Funding 1 Deed of Charge is hereby
         amended by the deletion of the word "first" from the third and fourth
         lines thereof, respectively.

6.6      CLAUSES 8.5 of the Funding 1 Deed of Charge is hereby amended by the
         insertion of the words "from Funding 1" immediately after the words
         "all monies received or recovered by it" on the third line thereof.

6.7      CLAUSE 27.2 of the Funding 1 Deed of Charge is hereby amended by the
         deletion of the words "(whether a trust corporation or not)" from the
         fourth line thereof and the insertion of the words "(in which case such
         person must be a Trust Corporation)" after the words "separate trustee"
         on the fifth line thereof.

6.8      Clause 27 of the Funding 1 Deed of Charge is hereby amended by the
         insertion of a new clause 27.4 as follows:

         "Notwithstanding the provisions of Clause 27.1 (Powers of Funding 1),
         any corporation into which the Funding 1 Security Trustee may be merged
         or converted or with which it may be consolidated, or any corporation
         resulting from any merger, conversion or consolidation to which the
         Funding 1 Security Trustee shall be a party, or any corporation
         succeeding to all or substantially all the corporate trust business of
         the Funding 1 Security Trustee, shall be the successor of the Funding 1
         Security Trustee hereunder without any consent or sanction of the
         Funding 1 Secured Creditors, provided such corporation shall be
         otherwise qualified and eligible under this Clause, without the
         execution or filing of any paper or any further act on the part of any
         of the parties hereto (unless otherwise required by applicable law to
         effect such succession)."


7.       MISCELLANEOUS

7.1      Save as expressly amended by this Deed, the Funding 1 Deed of Charge
         shall remain in full force and effect. This Deed shall form part of the
         Funding 1 Deed of Charge and references therein to "this Funding 1 Deed
         of Charge" shall be read as references to the Funding 1 Deed of Charge
         as amended by this Deed.

7.2      For the purposes of the definition of "First Issuer Transaction
         Account" contained in the First Issuer Master Definitions and
         Construction Schedule, it is agreed that the First Issuer may, with the
         prior written consent of the security trustee, replace any existing
         First Issuer Transaction Account with a replacement bank account
         thereafter designated, and to be treated as, the First Issuer
         Transaction Account for the purposes of the Transaction Documents.



                                       5
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8.       APPLICATION

         Prior to and following enforcement of the Funding 1 Security all
         amounts at any time held by Funding 1, the Cash Manager or the Security
         Trustee in respect of the security created under this Deed shall be
         held and/or applied by such person subject to and in accordance with
         the relevant provisions of the Funding 1 Deed of Charge.

9.       NOTICES AND DEMANDS

         Any notice or communication under or in connection with this Deed, the
         Funding 1 Deed of Charge or the Amended and Restated Master Definitions
         and Construction Schedule shall be given in the manner and at the times
         set out in CLAUSE 30 (Notices and Demands) of the Funding 1 Deed of
         Charge to the addresses given in this Clause or at such other address
         as the recipient may have notified to the other parties hereto and/or
         thereto in writing.

         The address referred to in this CLAUSE 9 for the Second Issuer is:

                                    Permanent Financing (No. 2) PLC
                                    Blackwell House
                                    Guildhall Yard
                                    London
                                    EC2V 5AE
         Facsimile:                 +44 (0) 20 7556 0975
         For the attention of:      The Directors

         with a copy to:            HBOS Treasury Services plc
                                    33 Old Broad Street
                                    London
                                    EC2N 1HZ

         Facsimile:                 +44 (0) 20 7574 8784
         For the attention of:      Head of Capital Markets and Securitisation

         The address referred to in this CLAUSE 9 for the Second Start-up Loan
         Provider is:

                                    Halifax plc
                                    Trinity Road
                                    Halifax
                                    West Yorkshire
                                    HX1 2RG

         Facsimile:                 +44 (0) 1422 391 777
         For the attention of:      the Mortgage Securitisation Managers

         with a copy to:            HBOS Treasury Services plc
                                    33 Old Broad Street
                                    London
                                    EC2N 1HZ

         Facsimile:                 +44 (0) 20 7574 8784
         For the attention of:      the Head of Capital Markets and
                                    Securitisation

         The address referred to in this CLAUSE 9 for the Security Trustees are:




                                       6
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                                    State Street Bank and Trust Company
                                    c/o U.S. Bank National Association
                                    1 Federal Street
                                    3rd Floor
                                    Boston, Massachusetts 02110

         Facsimile:                 +1 (617) 603 6638
         For the attention of:      Corporate Trust Services

                                    U.S. Bank National Association
                                    1 Federal Street
                                    3rd Floor
                                    Boston, Massachusetts 02110

         Facsimile:                 +1 (617) 603 6638
         For the attention of:      Corporate Trust Services

         or such other address and/or numbers as the Second Issuer, the Second
         Start-up Loan Provider or the Security Trustee may notify to the
         parties to the Funding 1 Deed of Charge in accordance with the
         provisions thereof.

10.      CHOICE OF LAW

         This Deed is governed by and shall be construed in accordance with
         English law.

DULY EXECUTED AND DELIVERED AS A DEED by each of the parties hereto or on its
behalf on the date appearing on page 1.



                                       7
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FUNDING 1

EXECUTED as a DEED by                              )
PERMANENT FUNDING (NO. 1)                          )
LIMITED acting by two                              )
directors/a director and the secretary             )

Director

Director/Secretary





FIRST ISSUER

EXECUTED as a DEED by                              )
PERMANENT FINANCING (NO. 1)                        )
PLC acting by two                                  )
directors/a director and the secretary             )

Director

Director/Secretary





SELLER

EXECUTED as a DEED by                              )
HALIFAX PLC                                        )
IN ITS CAPACITY AS SELLER                          )
acting by its attorney                             )
in the presence of                                 )

Witness:

Name:

Address:











                                       8
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CASH MANAGER

EXECUTED as a DEED by                            )
HALIFAX PLC                                      )
IN ITS CAPACITY AS CASH MANAGER                  )
acting by its attorney                           )
in the presence of                               )

Witness:

Name:

Address:




ACCOUNT BANK

EXECUTED as a DEED by                            )
THE GOVERNOR AND COMPANY OF                      )
THE BANK OF SCOTLAND                             )
IN ITS CAPACITY AS ACCOUNT BANK                  )
acting by two directors/a director               )
and the secretary                                )
Director
Director/Secretary




FUNDING 1 GIC PROVIDER

EXECUTED as a DEED by                            )
THE GOVERNOR AND COMPANY OF                      )
THE BANK OF SCOTLAND                             )
IN ITS CAPACITY AS FUNDING 1 GIC PROVIDER        )
acting by two directors/a director               )
and the secretary                                )
Director
Director/Secretary




FUNDING 1 SWAP PROVIDER

EXECUTED as a DEED by                            )
HALIFAX PLC                                      )
IN ITS CAPACITY AS FUNDING 1 SWAP PROVIDER       )
acting by its attorney                           )
in the presence of                               )




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Witness:

Name:

Address:



FUNDING 1 CORPORATE SERVICES PROVIDER

EXECUTED as a DEED by                               )
STRUCTURED FINANCE                                  )
MANAGEMENT LIMITED                                  )
acting by two Directors/a director                  )
and the secretary                                   )

Director

Director/Secretary





START-UP LOAN PROVIDER

EXECUTED as a DEED by                               )
HALIFAX PLC                                         )
IN ITS CAPACITY AS FIRST START-UP LOAN              )
PROVIDER AND SECOND START-UP                        )
LOAN PROVIDER                                       )
acting by its attorney                              )
in the presence of                                  )

Witness:

Name:

Address:

FUNDING 1 LIQUIDITY FACILITY PROVIDER

EXECUTED as a DEED by                               )
JPMORGAN CHASE BANK                                 )
acting by its attorney                              )
in the presence of                                  )

Witness:

Name:

Address:





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SECURITY TRUSTEE

EXECUTED as a DEED by                              )
STATE STREET BANK AND                              )
TRUST COMPANY                                      )
acting by its attorney in the presence of          )


Witness:

Name:

Address:


SECURITY TRUSTEE

EXECUTED as a DEED by                              )
U.S. BANK NATIONAL                                 )
ASSOCIATION                                        )
acting by its authorised signatory                 )


Authorised Signatory:


SECOND ISSUER

EXECUTED as a DEED by                              )
PERMANENT FINANCING (NO. 2) PLC                    )
PLC acting by two                                  )
directors/a director and the secretary             )

Director

Director/Secretary



                                       11
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                                   APPENDIX 1

               AMENDED AND RESTATED FUNDING 1 PRIORITY OF PAYMENTS




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                                   SCHEDULE 3

                         FUNDING 1 PRIORITY OF PAYMENTS

                                     PART I

             FUNDING 1 PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS


1.       CALCULATION OF FUNDING 1 AVAILABLE REVENUE RECEIPTS

1.1      On the day falling four London Business Days prior to each Funding 1
         Interest Payment Date, the Cash Manager will calculate the amount of
         Funding 1 Available Revenue Receipts that available to be applied on
         the next Funding 1 Interest Payment Date in accordance with the Funding
         1 Pre-Enforcement Revenue Priority of Payments.

1.2      Subject to paragraph 1.3 below, if there would be insufficient Funding
         1 Available Revenue Receipts to meet Funding 1's obligations on the
         next Funding 1 Interest Payment Date under the Funding 1
         Pre-Enforcement Revenue Priority of Payments, then Funding 1 (or the
         Cash Manager on its behalf) shall pay or provide for that deficit by
         applying amounts then standing to the credit of (i) the Funding 1
         Principal Ledger, if any, and (ii) any amounts standing to the credit
         of the Cash Accumulation Ledger after deducting the amounts standing to
         the credit of the Funding 1 Principal Ledger (if any) from such ledger,
         and the Cash Manager shall make a corresponding entry in the relevant
         Principal Deficiency Ledger.

1.3      Funding 1 Principal Receipts may not be used to pay interest on any
         Term Advance if and to the extent that would result in a deficiency
         being recorded or an existing deficiency being increased on a Principal
         Deficiency Sub-Ledger relating to a higher ranking Term Advance.

1.4      If, on a Funding 1 Interest Payment Date, there is a deficit of Funding
         1 Available Revenue Receipts and there are no (or insufficient) amounts
         standing to the credit of the Funding 1 Principal Ledger or the Cash
         Accumulation Ledger to cure that deficit as described in PARAGRAPHS 1.2
         and 1.3 above, then the Cash Manager will direct Funding 1 to request a
         drawing pursuant to CLAUSE 5.1 of the Funding 1 Liquidity Facility
         Agreement to apply towards the deficit.

2.       DISTRIBUTION OF FUNDING 1 AVAILABLE REVENUE RECEIPTS PRIOR TO THE
         SERVICE OF AN INTERCOMPANY LOAN ACCELERATION NOTICE ON FUNDING 1

2.1      This section sets out the order of priority of payments of Funding 1
         Available Revenue Receipts as at the Closing Date. If Funding 1 enters
         into New Intercompany Loan Agreements, then this order of priority may
         change pursuant to CLAUSE 7.5 of the Funding 1 Deed of Charge.

2.2      Except for amounts due to third parties by the First Issuer and/or the
         Second Issuer and/or Funding 1 under paragraph (a) below or amounts due
         to the Account Bank and/or the First Issuer Account Bank and/or the
         Second Issuer Account Bank which shall be paid when due, on each
         Funding 1 Interest Payment Date prior to the service of an Intercompany
         Loan Acceleration Notice on Funding 1, the Cash Manager will apply the
         Funding 1 Available Revenue Receipts in the following order of priority
         (being the Funding 1 Pre-Enforcement Revenue Priority of Payments):

(a)      firstly, in or towards satisfaction of pro rata and pari passu, the
         amounts due to:




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         (i)      the Security Trustee (together with interest and any amount in
                  respect of VAT on those amounts) and to provide for any
                  amounts due or to become due in the immediately following
                  Interest Period to the Security Trustee under the Funding 1
                  Deed of Charge;

         (ii)     pro rata and pari passu, to pay amounts due to the First
                  Issuer in respect of the First Issuer's obligations specified
                  in items (a) to (c) inclusive of the First Issuer
                  Pre-Enforcement Revenue Priority of Payments or, as the case
                  may be, items (a) and (b) of the First Issuer Post-Enforcement
                  Priority of Payments;

         (iii)    pro rata and pari passu, to pay amounts due to the Second
                  Issuer in respect of the Second Issuer's obligations specified
                  in items (a) to (c) inclusive of the Second Issuer
                  Pre-Enforcement Revenue Priority of Payments or, as the case
                  may be, items (a) and (b) of the Second Issuer
                  Post-Enforcement Priority of Payments;

         (iv)     any third party creditors of Funding 1 (other than those
                  referred to later in this order of priority of payments),
                  which amounts have been incurred without breach by Funding 1
                  of the Funding 1 Agreements (and for which payment has not
                  been provided for elsewhere) and to provide for any of these
                  amounts expected to become due and payable in the immediately
                  following Interest Period by Funding 1 and to pay or discharge
                  any liability of Funding 1 for corporation tax on any
                  chargeable income or gain of Funding 1;

(b)      secondly, in or towards satisfaction of amounts due to the Funding 1
         Liquidity Facility Provider under the Funding 1 Liquidity Facility
         Agreement (except for amounts drawn thereunder to repay principal on
         the Bullet Term Advances and any Funding 1 Liquidity Subordinated
         Amounts);

(c)      thirdly, in or towards satisfaction of amounts due and payable to the
         Cash Manager under the Cash Management Agreement (together with any
         amount in respect of VAT on those amounts);

(d)      fourthly, in or towards satisfaction, pro rata and pari passu, of
         amounts, if any, due and payable to the Account Bank under the terms of
         the Bank Account Agreement and to the Funding 1 Corporate Services
         Provider under the Funding 1 Corporate Services Agreement;

(e)      fifthly, in or towards satisfaction of all amounts (if any) due and
         payable to the Funding 1 Swap Provider under the Funding 1 Swap
         Agreement (including termination payments but excluding any Funding 1
         Swap Excluded Termination Amount);

(f)      sixthly, in or towards satisfaction, pro rata and pari passu, of the
         amounts of interest due and payable on the Term AAA Advances;

(g)      seventhly, towards a credit to the AAA Principal Deficiency Sub-Ledger
         in an amount sufficient to eliminate any debit on that ledger;

(h)      eighthly, in or towards satisfaction, pro rata and pari passu, of the
         amounts of interest due and payable on the Term AA Advances;

(i)      ninthly, towards a credit to the AA Principal Deficiency Sub-Ledger in
         an amount sufficient to eliminate any debit on that ledger;



                                       14
<PAGE>



(j)      tenthly, in or towards satisfaction, pro rata and pari passu, of
         amounts of interest due and payable on the Term BBB Advances;

(k)      eleventhly, towards a credit to the BBB Principal Deficiency Sub-Ledger
         in an amount sufficient to eliminate any debit on that ledger;

(l)      twelfthly, in or towards satisfaction, pro rata and pari passu,
         according to the respective amounts thereof:

         (i)      any amounts due to the First Issuer in respect of the First
                  Issuer's obligations (if any) to make a termination payment to
                  a First Issuer Swap Provider (but excluding any First Issuer
                  Swap Excluded Termination Amount); and

         (ii)     any amounts due to the Second Issuer in respect of the Second
                  Issuer's obligations (if any) to make a termination payment to
                  a Second Issuer Swap Provider (but excluding any Second Issuer
                  Swap Excluded Termination Amount);

(m)      thirteenthly, towards a credit to the Reserve Ledger in an amount up to
         the Reserve Fund Required Amount taking into account any net
         replenishment of the Reserve Fund on that Funding 1 Interest Payment
         Date from Funding 1 Available Principal Receipts;

(n)      fourteenthly, in or towards satisfaction, pro rata and pari passu, of
         any amounts due (without double counting) to:

         (i)      the First Issuer in respect of the First Issuer's obligations
                  to make any termination payment to a First Issuer Swap
                  Provider as a result of a First Issuer Swap Provider Downgrade
                  Termination Event;

         (ii)     the Second Issuer in respect of the Second Issuer's
                  obligations to make any termination payment to a Second Issuer
                  Swap Provider as a result of a Second Issuer Swap Provider
                  Downgrade Termination Event;

         (iii)    the First Issuer in respect of any other amounts due and
                  payable under the First Issuer Intercompany Loan Agreement and
                  not otherwise provided for in this order of priorities:

         (iv)     the Second Issuer in respect of any other amounts due and
                  payable under the Second Issuer Intercompany Loan Agreement
                  and not otherwise provided for in this order of priorities:

         (v)      after the occurrence of a Funding 1 Swap Provider Default or a
                  Funding 1 Swap Provider Downgrade Termination Event, towards
                  payment of any termination amount due and payable by Funding 1
                  under the Funding 1 Swap Agreement; and

         (iv)     the Funding 1 Liquidity Facility Provider to pay any Funding 1
                  Liquidity Subordinated Amounts due under the Funding 1
                  Liquidity Facility Agreement;

(o)      fifteenthly, towards payment pro rata and pari passu amounts due to:

         (i)      the First Start-up Loan Provider under the First Start-up Loan
                  Agreement; and

         (ii)     the Second Start-up Loan Provider under the Second Start-up
                  Loan Agreement;




                                       15
<PAGE>


(p)      sixteenthly, towards payment of an amount equal to 0.01 per cent. of
         the Funding 1 Available Revenue Receipts; and

(q)      seventeenthly, towards payment to the shareholders of Funding 1 of any
         dividend declared by Funding 1.



                                       16
<PAGE>



                                     PART II

                   FUNDING 1 PRINCIPAL PRIORITIES OF PAYMENTS

1.       DUE AND PAYABLE DATES OF TERM ADVANCES

1.1      Each First Issuer Term Advance shall become "DUE AND PAYABLE" on the
         earlier to occur of:

         (a)      each respective First Issuer Term Advances Due Date;

         (b)      the date upon which a Trigger Event occurs;

         (c)      the date upon which the Note Trustee serves a Note
                  Acceleration Notice on the First Issuer; and

         (d)      the date upon the Security Trustee serves an Intercompany Loan
                  Acceleration Notice on Funding 1.

1.2      Each Second Issuer Term Advance shall become "DUE AND PAYABLE" on the
         earlier to occur of:

         (a)      each respective Second Issuer Term Advances Due Date;

         (b)      the date upon which a Trigger Event occurs;

         (c)      the date upon which the Note Trustee serves a Note
                  Acceleration Notice on the Second Issuer;

         (d)      the date upon the Security Trustee serves an Intercompany Loan
                  Acceleration Notice on Funding 1; and

         (e)      the date upon which a step-up date occurs in relation to the
                  relevant Second Issuer Term Advance.

1.3      If there are insufficient Funding 1 Available Principal Receipts
         available to repay a Term Advance on a Funding 1 Interest Payment Date
         upon which that Term Advance is due and payable (either in full or as a
         Scheduled Amortisation Instalment), then the shortfall will be repaid
         on subsequent Funding 1 Interest Payment Dates from Funding 1 Available
         Principal Receipts until that Term Advance is fully repaid.

2.       REPAYMENT OF TERM ADVANCES OF EACH SERIES PRIOR TO THE OCCURRENCE OF A
         TRIGGER EVENT AND PRIOR TO THE SERVICE ON FUNDING 1 OF AN INTERCOMPANY
         LOAN ACCELERATION NOTICE OR THE SERVICE ON EACH ISSUER OF A NOTE
         ACCELERATION NOTICE

2.1      On each Funding 1 Interest Payment Date (but prior to the date on which
         (i) a Trigger Event occurs, (ii) the Security Trustee serves an
         Intercompany Loan Acceleration Notice on Funding 1 or (iii) each Issuer
         has been served with a Note Acceleration Notice by the Security
         Trustee), the Cash Manager shall apply Funding 1 Available Principal
         Receipts in the following order of priority:




                                       17
<PAGE>


         (a)      firstly, towards repayment of amounts due to the Funding 1
                  Liquidity Facility Provider under the Funding 1 Liquidity
                  Facility to the extent only that amounts were drawn thereunder
                  in order to make Eligible Liquidity Facility Principal
                  Repayments;

         (b)      secondly, towards replenishment of the Reserve Fund to the
                  extent only that monies have been drawn from the Reserve Fund
                  to make Eligible Reserve Fund Principal Repayments;

         (c)      thirdly, towards repayment of all Term AAA Advances that are
                  then due and payable in an order of priority based on their
                  Final Repayment Date, so that the earliest maturing Term AAA
                  Advance is paid first (and if any Term AAA Advances have the
                  same Final Repayment Date, then those Term Advances will be
                  repaid pro rata and pari passu), in each case subject to Rules
                  (1), (2) and (3) set out in PARAGRAPHS 2.2(a), (b) and (c)
                  below;

         (d)      fourthly, pro rata and pari passu towards repayment of all
                  Term AA Advances that are then due and payable, in each case
                  subject to Rules (1), (2) and (3) set out in PARAGRAPHS
                  2.2(a), (b) and (c) below;

         (e)      fifthly, pro rata and pari passu towards repayment of all Term
                  BBB Advances that are then due and payable, in each case
                  subject to Rules (1), (2) and (3) set out in PARAGRAPHS
                  2.2(a), (b) and (c) below;

         (f)      sixthly, towards a credit to the Cash Accumulation Ledger
                  until the balance is equal to Funding 1's Cash Accumulation
                  Liability (as calculated after any payments are made at
                  PARAGRAPH 2.1(c) above); and

         (g)      seventhly, the remainder shall be credited to the Funding 1
                  Principal Ledger.

2.2      In the applicable circumstances, the following Rules apply in
         determining the amounts to be paid under PARAGRAPHS 2.1(c), (d) and (e)
         above and, where indicated, PARAGRAPHS 3.1(c), (d) and (e) and 4.1(c),
         (d) and (e) below:

         (a)      Rule (1) - Deferral of repayment of Pass-Through Term Advances
                  and/or Scheduled Amortisation Instalments in certain
                  circumstances.

                  (A)      Deferral of Term AA Advances and/or Term BB Advances

                  (i)      If on a Funding 1 Interest Payment Date:

                           (1)      there is a debit balance on the BBB
                                    Principal Deficiency Sub-Ledger or the AA
                                    Principal Deficiency Sub-Ledger, after
                                    application of the Funding 1 Available
                                    Revenue Receipts on that Funding 1 Interest
                                    Payment Date; or

                           (2)      the Adjusted Reserve Fund Level is less than
                                    the Reserve Fund Threshold; or

                           (3)      the aggregate Outstanding Principal Balance
                                    of Loans in the Mortgages Trust, in respect
                                    of which the aggregate amount in arrears is
                                    more than three times the Monthly Payment
                                    then due, is more than 5 per cent. of the
                                    aggregate Outstanding Principal Balance of
                                    Loans in the Mortgages Trust,




                                       18
<PAGE>




                           then until the relevant circumstances as described in
                           SUB-PARAGRAPHS 2.2(a)(A)(i)(1), (2) or (3) above has
                           been cured or otherwise ceases to exist, if:

                           (a)      any Term AAA Advance (whether or not such
                                    Term AAA Advance is then due and payable)
                                    remains outstanding after making the
                                    payments under PARAGRAPH 2.1(c) above the
                                    Term AA Advances (including the Issuer Term
                                    AA Advances) will not be entitled to
                                    Principal Repayments under PARAGRAPH 2.1(d)
                                    above; and/or

                           (b)      any Term AAA Advance or any AA Term Advance
                                    (whether or not such Term AAA Advance or
                                    Term AA Advance is then due and payable)
                                    remains outstanding after making the
                                    payments under PARAGRAPHS 2.1 (c) and/or (d)
                                    above then the Term BBB Advances (including
                                    the Issuer Term BBB Advances) will not be
                                    entitled to Principal Repayments under
                                    PARAGRAPH 2.1(e) above.

                  (B)      Deferral of Scheduled Amortisation Term Advances when
                           CPR is below certain threshold(s) prior to Step-up
                           Date:

                  If on a Funding 1 Interest Payment Date:

                    (i)    one or more Bullet Term Advances are within a Cash
                           Accumulation Period at that time (irrespective of
                           whether any Scheduled Amortisation Instalments are
                           then in a Cash Accumulation Period); and

                    (ii)   either:

                             (1)    the quarterly CPR is less than 10 per
                                    cent.; or

                             (2)    both:

                                    (I)      the quarterly CPR is equal to or
                                             greater than 10 per cent., but less
                                             than 15 per cent.; and

                                    (II)     the annualised CPR is less than 10
                                             per cent.,

                                    then on or before their Step-up Dates the
                                    Scheduled Amortisation Term Advances will be
                                    entitled to Principal Repayments under
                                    PARAGRAPH 2.1(c) above only the extent
                                    permitted under the Scheduled Amortisation
                                    Repayment Restrictions.

                  (C)      Deferral of original Pass-Through Term Advances when
                           CPR is below a certain threshold prior to Step-up
                           Date:

                  If on a Funding 1 Interest Payment Date:

                  (i)      one or more Bullet Term Advances and/or Scheduled
                           Amortisation Instalments are within a Cash
                           Accumulation Period at that time; and



                                       19
<PAGE>



                  (ii)     the quarterly CPR is less than 15 per cent.; and

                  (iii)    there is a Cash Accumulation Shortfall at that time,

                  then, on or before their Step-up Dates, the Original
                  Pass-Through Term Advances will be entitled to principal
                  repayments under PARAGRAPHS 2.1(c), (d) and (e) (as
                  applicable) above only to the extent permitted under the
                  Pass-Through Repayment Restrictions.

         (b)      Rule (2) - Repayment of Payable Pass-Through Term Advances
                  after the occurrence of a Step-up Date

                  Following the occurrence of the Step-up Date under an
                  Intercompany Loan Agreement ("INTERCOMPANY LOAN A") but prior
                  to the time which Rule (3) (as set out in PARAGRAPH 2.2(c)
                  below) becomes applicable and provided that the Funding 1
                  Share of the Trust Property is greater than zero, the
                  aggregate amount repaid on a Funding 1 Interest Payment Date
                  in relation to Term Advances (other than Bullet Term Advances
                  or Scheduled Amortisation Instalments) under that Intercompany
                  Loan A under PARAGRAPHS 2.1(c), (d) and (e) above shall be
                  limited to an amount calculated as follows:

<TABLE>
<S>                                           <C>
                  Funding 1 Principal Funds x Outstanding Principal Balance of Intercompany Loan A
                                              ----------------------------------------------------
                                                Aggregate Outstanding Principal Balance of all
                                                                Intercompany Loans
</TABLE>

         (c)      Rule (3) - Repayment of Term Advances after service of a Note
                  Acceleration Notice on one or more (but not all) of the
                  Issuers

                  If the Note Trustee serves a Note Acceleration Notice on one
                  or more (but not all) of the Issuers, then this Rule (3) will
                  apply. In these circumstances:

                  (i)      service of a Note Acceleration Notice will not result
                           in automatic enforcement of the Funding 1 Security;

                  (ii)     all of the Term Advances (including any outstanding
                           Bullet Term Advances and Scheduled Amortisation
                           Instalments) under the Intercompany Loan relating to
                           the relevant Issuer who has been served a Note
                           Acceleration Notice ("INTERCOMPANY LOAN B") will
                           become immediately due and payable;

                  (iii)    the Cash Manager shall apply the appropriate amount
                           of Funding 1 Available Principal Receipts allocated
                           to Intercompany Loan B at the relevant level of the
                           Funding 1 Principal Priorities of Payments, towards
                           repayment, pro rata and pari passu, of any Term AAA
                           Advances outstanding under that Intercompany Loan B
                           (that is, those Term AAA Advances will not be repaid
                           in an order of priority based on their Final
                           Repayment Date); and

                  (iv)     the aggregate amount repaid on a Funding 1 Interest
                           Payment Date in respect of Intercompany Loan B under
                           PARAGRAPHS 2.1(c), (d) and (e), 3.1(c), (d) and (e)
                           or 4.1(c), (d) and (e) (as applicable) of the
                           relevant priority of payments shall be limited to an
                           amount calculated as follows:



                                       20
<PAGE>



<TABLE>
<S>                                  <C>
         Funding 1 Principal Funds x Outstanding Principal Balance of Intercompany Loan B
                                     ----------------------------------------------------
                                        Aggregate Outstanding Principal Balance of all
                                                        Intercompany Loans
</TABLE>

         Allocations involving Rule (2) or Rule (3)

         Where Rule (2) or Rule (3) applies at a level of any priority of
         payments, the funds available for making payments at that level shall
         first be allocated without reference to Rule (2) or Rule (3) (as
         applicable). However, if the amount so allocated to one or more Term
         Advances exceeds the amount permitted under Rule (2) or Rule (3) (as
         applicable) to be paid in respect of those Term Advances (the "CAPPED
         ADVANCES"), the excess shall then be reallocated among any other Term
         Advances at that level using the method of allocation as applies at
         that level but without reference to the Capped Advances in calculating
         such reallocation. If a further such excess arises as a result of the
         reallocation process, the reallocation process shall be repeated at
         that level in relation to each such further excess that arises until no
         further funds can be allocated at that level following which the
         remaining excess shall then be applied at the next level of that
         Priority of Payments.

3.       REPAYMENT OF TERM ADVANCES OF EACH SERIES FOLLOWING THE OCCURRENCE OF A
         NON-ASSET TRIGGER EVENT BUT PRIOR TO THE SERVICE ON FUNDING 1 OF AN
         INTERCOMPANY LOAN ACCELERATION NOTICE OR THE SERVICE ON EACH ISSUER OF
         A NOTE ACCELERATION NOTICE

3.1      On each Funding 1 Interest Payment Date following the occurrence of a
         Non-Asset Trigger Event (but prior to the date on which (i) an Asset
         Trigger Event occurs, (ii) the Security Trustee serves an Intercompany
         Loan Acceleration Notice on Funding 1 or (iii) each Issuer has been
         served with a Note Acceleration Notice), the Bullet Term Advances and
         the Scheduled Amortisation Term Advances under each Intercompany Loan
         will be deemed to be Pass-Through Term Advances and, on each Funding 1
         Interest Payment Date, Funding 1 will be required to apply Funding 1
         Available Principal Receipts in the following order of priority:

         (a)      firstly, towards repayment of amounts due to the Funding 1
                  Liquidity Facility Provider under the Funding 1 Liquidity
                  Facility to the extent only that amounts were drawn thereunder
                  in order to make Eligible Liquidity Facility Principal
                  Repayments;

         (b)      secondly, towards replenishment of the Reserve Fund to the
                  extent only that monies have been drawn from the Reserve Fund
                  to make Eligible Reserve Fund Principal Repayments;

         (c)      thirdly, to repay the Term AAA Advance with the earliest Final
                  Repayment Date, then to repay the Term AAA Advance with the
                  next earliest Final Repayment Date, and so on until the Term
                  AAA Advances are fully repaid;

         (d)      fourthly, pro rata and pari passu, to repay the Term AA
                  Advances, until those Term AA Advances are fully repaid; and

         (e)      fifthly, pro rata and pari passu, to repay the Term BBB
                  Advances, until each of those Term BBB Advances are fully
                  repaid.




                                       21
<PAGE>


4.       REPAYMENT OF TERM ADVANCES OF EACH SERIES FOLLOWING THE OCCURRENCE OF
         AN ASSET TRIGGER EVENT BUT PRIOR TO THE SERVICE ON FUNDING 1 OF AN
         INTERCOMPANY LOAN ACCELERATION NOTICE OR THE SERVICE ON EACH ISSUER OF
         A NOTE ACCELERATION NOTICE

4.1      Following the occurrence of an Asset Trigger Event (whether or not a
         Non-Asset Trigger Event occurs or has occurred) (but prior to (i)
         service by the Security Trustee of an Intercompany Loan Acceleration
         Notice on Funding 1 or (ii) each issuer has been served with a Note
         Acceleration Notice), the Bullet Term Advances and the Scheduled
         Amortisation Term Advances in respect of all Intercompany Loans will be
         deemed to be Pass-Through Term Advances, and on each Funding 1 Interest
         Payment Date Funding 1 will be required to apply Funding 1 Available
         Principal Receipts in the following order of priority:

         (a)      firstly, towards repayment of amounts due to the Funding 1
                  Liquidity Facility Provider under the Funding 1 Liquidity
                  Facility to the extent only that those amounts were drawn in
                  order to make Eligible Liquidity Facility Principal
                  Repayments;

         (b)      secondly, towards replenishment of the Reserve Fund to the
                  extent only that monies have been drawn from the Reserve Fund
                  to make Eligible Reserve Fund Principal Repayments;

         (c)      thirdly, pro rata and pari passu, towards repayment of the
                  Term AAA Advances, until each of those Term AAA Advances is
                  fully repaid;

         (d)      fourthly, pro rata and pari passu, towards repayment of the
                  Term AA Advances until each of those Term AA Advances is fully
                  repaid; and

         (e)      fifthly, pro rata and pari passu, towards repayment of the
                  Term BBB Advances, until each of those Term BBB Advances is
                  fully repaid.

5.       REPAYMENT OF TERM ADVANCES OF EACH SERIES FOLLOWING THE SERVICE ON EACH
         ISSUER OF A NOTE ACCELERATION NOTICE BUT PRIOR TO THE SERVICE ON
         FUNDING 1 OF AN INTERCOMPANY LOAN ACCELERATION NOTICE

5.1      If each Issuer has been served with a Note Acceleration Notice, then
         that will not result in automatic enforcement of the Funding 1 Security
         under the Funding 1 Deed of Charge. In those circumstances, however,
         the Bullet Term Advances and any Scheduled Amortisation Term Advances
         under each Issuer's respective Intercompany Loan will be deemed to be
         Pass-Through Term Advances and Funding 1 will be required to apply
         Funding 1 Available Principal Receipts on each Funding 1 Interest
         Payment Date in the following order of priority:

         (a)      firstly, towards repayment to the Funding 1 Liquidity Facility
                  Provider of amounts drawn under the Funding 1 Liquidity
                  Facility on the prior Funding 1 Interest Payment Date in order
                  to make Eligible Liquidity Facility Principal Repayments;

         (b)      secondly, towards replenishment of the Reserve Fund to the
                  extent only that monies have been drawn from the Reserve Fund
                  to make Eligible Reserve Fund Principal Repayments;

         (c)      thirdly, pro rata and pari passu, towards repayment of the
                  Term AAA Advances, until each of those Term AAA Advances is
                  fully repaid.

         (d)      fourthly, pro rata and pari passu, towards repayment of the
                  Term AA Advances, until each of those Term AA Advances is
                  fully repaid; and




                                       22
<PAGE>


         (e)      fifthly, pro rata and pari passu, towards repayment of the
                  Term BBB Advances, until each of those Term BBB Advances is
                  fully repaid

6.       REPAYMENT OF TERM ADVANCES WHEN FUNDING 1 RECEIVES THE AMOUNT
         OUTSTANDING UNDER AN INTERCOMPANY LOAN

         If Funding 1 receives a payment from the Seller in the circumstances
         set out in CLAUSE 7 of the Mortgages Trust Deed or the proceeds of a
         New Intercompany Loan which are to be used to refinance another
         Intercompany Loan (such payment by the Seller or such proceeds being a
         "FULL REPAYMENT AMOUNT"), then Funding 1 will not apply the Full
         Repayment Amount as described in PARAGRAPHS 2 to 5 above. Instead,
         Funding 1 will apply the Full Repayment Amount to repay the relevant
         Intercompany Loan. If at any time only one Intercompany Loan is
         outstanding, then Funding 1 will apply the Full Repayment Amount first
         to repay amounts due to the Funding 1 Liquidity Facility Provider under
         the Funding 1 Liquidity Facility to the extent only that amounts were
         drawn thereunder in order to repay the principal amounts of any Bullet
         Term Advances made under any of the Intercompany Loans and the
         remainder shall be applied to repay the relevant Intercompany Loan.




                                       23
<PAGE>


                                    PART III

                 FUNDING 1 POST-ENFORCEMENT PRIORITY OF PAYMENTS


All monies received or recovered by the Security Trustee or the Receiver in
respect of the Funding 1 Security subsequent to the Security Trustee serving an
Intercompany Loan Acceleration Notice on Funding 1, will be applied (save to the
extent required by law) by the Security Trustee or the Receiver on each Funding
1 Interest Payment Date in accordance with the following order of priority (in
each case only and to the extent that payments or provision of a higher priority
have been made in full):

(a)      firstly, in or towards satisfaction of, pro rata and pari passu,
         amounts due to:

         (i)      the Security Trustee and any Receiver appointed by the
                  Security Trustee, together with interest and any amount in
                  respect of VAT on those amounts, and to provide for any
                  amounts due or to become due to the Security Trustee and the
                  Receiver in the following Interest Period under the Funding 1
                  Deed of Charge;

         (ii)     the First Issuer in respect of the First Issuer's obligations
                  specified in items (a) and (b) of the First Issuer
                  Post-Enforcement Priority of Payments; and

         (iii)    the Second Issuer in respect of the Second Issuer's
                  obligations specified in items (a) and (b) of the Second
                  Issuer Post-Enforcement Priority of Payments;

(b)      secondly, in or towards satisfaction of amounts due and payable to the
         Cash Manager and any costs, charges, liabilities and expenses then due
         or to become due and payable to the Cash Manager under the Cash
         Management Agreement, together with VAT on those amounts;

(c)      thirdly, in or towards satisfaction of, pro rata and pari passu,
         amounts (if any) due to the Account Bank under the terms of the Bank
         Account Agreement and to the Funding 1 Corporate Services Provider
         under the Funding 1 Corporate Services Agreements;

(d)      fourthly, in or towards satisfaction of amounts (if any) due to the
         Funding 1 Liquidity Facility Provider under the Funding 1 Liquidity
         Facility Agreement (except for any Funding 1 Liquidity Facility
         Subordinated Amounts);

(e)      fifthly, in or towards satisfaction of amounts (if any) due to the
         Funding 1 Swap Provider under the Funding 1 Swap Agreement (including
         any termination payment but excluding any Funding 1 Swap Excluded
         Termination Amount;

(f)      sixthly, in or towards satisfaction of, pro rata and pari passu,
         amounts of interest and principal due and payable on the Term AAA
         Advances;

(g)      seventhly, in or towards satisfaction of, pro rata and pari passu,
         amounts of interest and principal due and payable on the Term AA
         Advances;

(h)      eighthly, in or towards satisfaction of, pro rata and pari passu,
         amounts of interest and principal due and payable on the Term BBB
         Advances;

(i)      ninthly, in or towards satisfaction of any amounts due to:




                                       24
<PAGE>


         (i)      the First Issuer in respect of the First Issuer's obligation's
                  (if any) to make a termination payment to a First Issuer Swap
                  Provider (but excluding any First Issuer Swap Excluded
                  Termination Amount);

         (ii)     the Second Issuer in respect of the Second Issuer's
                  obligations (if any) to make a termination payment to a Second
                  Issuer Swap Provider (but excluding any Second Issuer Swap
                  Excluded Termination Amount);

(j)      tenthly, in or towards satisfaction of, pro rata and pari passu
         (without double counting):

         (i)      amounts due to the First Issuer in respect of the First
                  Issuer's obligations to pay any termination payment to a First
                  Issuer Swap Provider as a result of a First Issuer Swap
                  Provider Default or a First Issuer Swap Provider Downgrade
                  Termination Event (as appropriate);

         (ii)     amounts due to the Second Issuer in respect of the Second
                  Issuer's obligations to pay any termination payment to a
                  Second Issuer Swap Provider as a result of a Current Swap
                  Provider Default or an Swap Provider Downgrade Termination
                  Event (as appropriate);

         (iii)    any other amounts due to the First Issuer under the First
                  Issuer Intercompany Loan Agreement and not otherwise provided
                  for earlier in this order of priorities;

         (iv)     any other amounts due to the Second Issuer under the Second
                  Issuer Intercompany Loan Agreement and not otherwise provided
                  for earlier in this order of priorities;

         (v)      any Funding 1 Liquidity Subordinated Amounts due to the
                  Funding 1 Liquidity Facility Provider; and

         (vi)     amounts due to the Funding 1 Swap Provider in respect of any
                  termination payment due to the Funding 1 Swap Provider as a
                  result of a Funding 1 Swap Provider Default or a Funding 1
                  Swap Provider Downgrade Termination Event; and

(k)      eleventhly, towards payment, pro rata and pari passu, of amounts due
         to:

         (i)      the First Start-up Loan Provider under the First Start-up Loan
                  Agreement; and

         (ii)     the Second Start-up Loan Provider under the Second Start-up
                  Loan Agreement.





                                       25
<PAGE>






                             DATED [6TH MARCH], 2003




                        PERMANENT FUNDING (NO. 1) LIMITED

                                       and

                         PERMANENT FINANCING (NO. 1) PLC

                                       and

                         PERMANENT FINANCING (NO. 2) PLC

                                       and

                       STATE STREET BANK AND TRUST COMPANY

                                       and

                         U.S. BANK NATIONAL ASSOCIATION

                                       and

                                   HALIFAX PLC

                                       and

                THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND

                                       and

                               JPMORGAN CHASE BANK

                                       and

                      STRUCTURED FINANCE MANAGEMENT LIMITED



                       -----------------------------------

               FIRST DEED OF ACCESSION TO FUNDING 1 DEED OF CHARGE

                       -----------------------------------



                                  ALLEN & OVERY
                                     London
                                  ICM:639292.4

<PAGE>


                                    CONTENTS

<TABLE>
<CAPTION>
CLAUSE                                                                                                    PAGE
------                                                                                                    ----
<S>   <C>                                                                                                <C>
1.    Interpretation.........................................................................................2
2.    Representations and Warranties.........................................................................3
3.    Accession..............................................................................................3
4.    Scope of the Funding 1 Deed of Charge..................................................................4
5.    Amendment to the Funding 1 Priority of Payments........................................................4
6.    Further Amendments.....................................................................................4
7.    Miscellaneous..........................................................................................5
8.    Application............................................................................................6
9.    Notices and Demands....................................................................................6
10.   Choice of Law..........................................................................................7

APPENDIX 1..................................................................................................12
Schedule 3..................................................................................................13
Part I - Funding 1 Pre-Enforcement Revenue Priority of Payments.............................................13
Part II - Funding 1 Principal Priorities of Payments........................................................17
Part III - Funding 1 Post-Enforcement Priority of Payments..................................................24
</TABLE>