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As filed with the Securities and Exchange Commission on June 27, 2006

UNITED
  STATESSECURITIES
  AND EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549

FORM
  20-F

| | REGISTRATION
        STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE
        ACT OF 1934
| | ----------------------------------------------------------------------------------------------------------------
| | OR                                                                                                              
| | ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934                      
| | For
        the fiscal year ended:December 31, 2005                                                             
| | OR                                                                                                              
| | TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934            
| | For
        the transition period fromN/AtoN/A                                                                  
| | SHELL COMPANY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934         
| | Date
        of event requiring this shell company report . . . . . . . . . . . . .
        . . . . . .         



|Commission
        file number: 333-13576                      |                                                         |                                
|-------------------------------------------------------------- | ------------------------------------------------------- | -------------------------------
|Holmes
        Financing (No. 4) PLC                           | Holmes
        Funding Limited                          | Holmes
        Trustees Limited
|(Exact
        name of Registrant as Specified in its Charter)
|United
        Kingdom                                         | United
        Kingdom                                  | United
        Kingdom         
|                                                               | (Jurisdiction
        of Incorporation or Organization) |                                
|Abbey
        National House                                   | Abbey
        National House                            | Abbey
        National House   
|2
        Triton Square                                        | 2
        Triton Square                                 | 2
        Triton Square        
|Regents
        Place                                         | Regents
        Place                                  | Regents
        Place         
|London
        NW1 3AN                                         | London
        NW1 3AN                                  | London
        NW1 3AN         
|United
        Kingdom                                         | United
        Kingdom                                  | United
        Kingdom         
|(011-44-20)
        7756 6302/5                                | (011-44-20)
        7756 6302/5                         | (011-44-20)
        7756 6302/5
|                                                               | (Address
        of Principal Executive Offices)        |                                

Securities
  registered or to be registered pursuant to Section 12(b) of the Act: NoneSecurities
  registered or to be registered pursuant to Section 12(g) of the Act: NoneSecurities
  for which there is a reporting obligation pursuant to Section 15(d) of the Act.

|Title
      of each class                                                 | Name
      of each exchange on which registered
|------------------------------------------------------------------------- | -----------------------------------------------
|$410,000,000
      Series 3 Class A2 Asset Backed Floating Rate Notes (1) | None                                           
|$34,500,000
      Series 3 Class B Asset Backed Floating Rate Notes (1)   | None                                           
|$49,500,000
      Series 3 Class C Asset Backed Floating Rate Notes (1)   | None                                           
|£300,000,000
      Series 3A2 Term AAA Advance (2)                        | None                                           
|£25,000,000
      Series 3 Term AA Advance (2)                            | None                                           
|£36,000,000
      Series 3 Term BBB Advance (2)                           | None                                           
|Funding
      Interest in the Mortgages Trust (3)                         | None                                           

|(1) | Holmes Financing
      (No. 4) PLC is the registrant for the Series 3 Issuer Notes.                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Holmes Funding
      Limited is the registrant for the Term Advances, and has issued those term
      advances to Holmes Financing (No.4) PLC.
      The Term Advances are the primary source of payments on the Series 3 Issuer
      Notes.
|(3) | Holmes Trustees
      Limited is the registrant for the Funding Interest in the Mortgages Trust
      and is holding the Funding Interest on behalf of Holmes Funding Limited.                                                               

Indicate
  by check mark if the registrant is a well-known seasoned issuer, as defined
  in Rule 405 of the Securities Act.

YesNo

If
  this report is an annual or transition report, indicate by check mark if the
  registrant is not required to file reports pursuant to Section 13 or 15(d) of
  the Securities Exchange Act of 1934.

YesNo



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large
  accelerated filerAccelerated
  filerNon-accelerated
  filer

Indicate
  by check mark which financial statement item the registrant has elected to follow.

Item
  17     
  Item 18Financial
  statements attached as Exhibits

If
  this is an annual report, indicate by check mark whether the registrant is a
  shell company (as defined in Rule 12b-2 of the Exchange Act).

YesNo



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|TABLE
        OF CONTENTS                            
|-----------------------------------------------------
|                                                     
|                                                     
|                                                     
|Presentation
      of Information                    
|Forward-looking
      Statements                     
|Incorporation
      of Certain Documents by Reference
|PART
        I                                       
|Item
      1.                                        
|Item
      2.                                        
|Item
      3.                                        
|Item
      4.                                        
|Item
      5.                                        
|Item
      6.                                        
|Item
      7.                                        
|Item
      8.                                        
|Item
      9.                                        
|Item
      10.                                       
|Item
      11.                                       
|Item
      12.                                       
|PART
        II                                      
|Item
      13.                                       
|Item
      14.                                       
|Item
      15.                                       
|Item
      16A                                       
|Item
      16B.                                      
|Item
      16C.                                      
|Item
      16D.                                      
|Item
      16E.                                      
|Item
      17.                                       
|Item
      18.                                       
|PART
        III                                     
|Item
      19.                                       

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PRESENTATION
  OF INFORMATION

This Annual Report on Form 20-F relates to Holmes Financing (No. 4) PLC (the Issuer) and the following securities (the Issuer Notes),
which were issued pursuant to a trust deed dated July 5, 2001 (the Issuer Trust Deed), between the Issuer and The Chase Manhattan Bank, London Branch, as note trustee (the Note Trustee):

|· | $410,000,000
      Series 3 Class A2 Asset Backed Floating Rate Notes Due July 2040
|- | -----------------------------------------------------------------------------------
|· | $34,500,000
      Series 3 Class B Asset Backed Floating Rate Notes Due July 2040  
|· | $49,500,000
      Series 3 Class C Asset Backed Floating Rate Notes Due July 2040  

This Annual Report on Form 20-F also relates to the following advances made pursuant to the loan confirmation intercompany loan agreement dated July 5, 2001
(the Intercompany Loan Agreement), between the Issuer, Holmes Funding Limited (Funding), and The Chase Manhattan Bank, London Branch, as security trustee and agent bank:

|· | £300,000,000
      Series 3A2 Term AAA Advance
|- | ----------------------------------------------
|· | £25,000,000
      Series 3 Term AA Advance    
|· | £36,000,000
      Series 3 Term BBB Advance   

This Annual Report on Form 20-F further relates to the funding interest in the mortgage trust, the property of which includes the loans in the portfolio at
the closing date or which have subsequently been assigned to Holmes Trustees Limited (Trustees) thereafter (including any new drawings under flexible loans) and their related security and any income generated by the loans or their
related security. The composition of the trust property will fluctuate as drawings under flexible loans and new loans are added and as the loans that were previously part of the trust property are repaid, mature, default or are repurchased by Abbey
National plc (the seller). The trust property also includes any money in the mortgages trustee guaranteed investment contract (or GIC) account and in any other bank account or bank accounts held by Trustees (as agreed by Trustees,
Funding, the seller and the security trustee) from time to time, called the alternative accounts. The mortgages trustee GIC account is the bank account in which Trustees holds any cash that is part of the trust property until it is distributed to
the beneficiaries. The alternative accounts are accounts into which payments by some mortgage borrowers are paid initially.

Capitalized terms used herein and not defined have the same meaning ascribed to such terms in the Registration Statement on Form S-11 relating to the
securities (file number 333-13576).

The information required for some items in Form 20-F is not applicable to the Issuer, Funding or Trustees. As used in this Annual Report filed on Form 20-F,
not applicable or Not Applicable means that the response to the referenced item is omitted in reliance on the procedures outlined in numerous no-action letters issued by the staff of the U.S. Securities and Exchange
Commission with respect to issuers of substantially similar asset-backed securities that file annual reports on Form 10-K, or that the referenced item is otherwise not applicable.

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FORWARD-LOOKING
  STATEMENTS

This annual report may contain forward-looking statements. All statements regarding our future financial condition, results of operations and business
strategy, plans and objectives are forward-looking. Statements containing the words believes, intends, expects and words of similar meaning are also forward-looking. In particular, the following are
forward-looking in nature: statements with regard to strategy and management objectives; product development efforts; the effects of changes or prospective changes in regulation; and trends in results, operations and overall market trends.

These forward-looking statements involve risks, uncertainties and other factors, some of which are beyond our control, that may cause our results,
performance or achievements or conditions in the markets in which we operate to differ from those expressed or implied in these forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which reflect
our management's view only as of the date of this annual report, and we do not undertake to update or revise any of them, whether as a result of new information, future events or otherwise.

INCORPORATION
  OF CERTAIN DOCUMENTS BY REFERENCE

Each of the Issuer, Funding and Trustees incorporates by reference its periodic filings on Form 6 K, which contain all financial information relating to the
securities relevant to the holders of the Issuer Notes.

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|PART I                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                  
|Not applicable to
      annual reports on Form 20-F.                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                  
|Item 2.  Offer Statistics and Expected Timetable                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                  
|Not applicable to
      annual reports on Form 20-F.                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                  
|Item 3.  Key Information                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                  
|A.
      Selected Financial Information                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                  
|Each of the Issuer,
      Funding and Trustees incorporates by reference and attaches hereto as exhibits
      the following reports, filed on Form 6-K, which include all financial information
      relating to the securities that is relevant to holders of the Issuer Notes:

|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|· | Periodic Report for the period from December 9, 2004 to January 10,
      2005.         
|  |                                                                                         
|· | Periodic
      Report for the period from January 11, 2005 to February 8, 2005.         
|  |                                                                                         
|· | Periodic
      Report for the period from February 9, 2005 to March 8, 2005.            
|  |                                                                                         
|· | Periodic
      Report for the period from March 9, 2005 to April 8, 2005.               
|  |                                                                                         
|· | Periodic
      Report for the period from April 9, 2005 to May 9, 2005.                 
|  |                                                                                         
|· | Periodic
      Report for the period from May 10, 2005 to June 8, 2005.                 
|  |                                                                                         
|· | Periodic
      Report for the period from June 9, 2005 to July 8, 2005.                 
|  |                                                                                         
|· | Periodic
      Report for the period from July 9, 2005 to August 8, 2005.               
|  |                                                                                         
|· | Periodic
      Report for the period from August 9, 2005 to September 9, 2005.          
|  |                                                                                         
|· | Periodic
      Report for the period from September 10, 2005 to October 10, 2005.       
|  |                                                                                         
|· | Periodic
      Report for the period from October 11, 2005 to November 8, 2005.         
|  |                                                                                         
|· | Periodic
      Report for the period from November 9, 2005 to December 8, 2005.         
|  |                                                                                         
|· | Periodic
      Report for the period from December 9, 2005 to January 9, 2006.          
|  |                                                                                         
|· | Profit and
      Loss Accounts and Balance Sheets for the period ended January 18, 2005.
|  |                                                                                         
|· | Profit and
      Loss Accounts and Balance Sheets for the period ended April 15, 2005.  
|  |                                                                                         
|· | Profit and
      Loss Accounts and Balance Sheets for the period ended July 15, 2005.   
|  |                                                                                         
|· | Profit and
      Loss Accounts and Balance Sheets for the period ended October 17, 2005.

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The following
document is also incorporated by reference from reports filed on Form
6-K:

|· | Certificate Relating to Financial Information pursuant to the Issuer
        Trust Deed dated April 30, 2006.
|- | -------------------------------------------------------------------------------------------------------------

The following
documents are filed as exhibits to this Annual Report on Form 20-F:

|· | Report and Accounts
      for Holmes Financing (No. 4) PLC for the year ended December 31, 2005. 
|- | -------------------------------------------------------------------------------------------------
|  |                                                                                                  
|· | Report
      and Accounts for Holmes Funding Limited for the year ended December 31,
      2005. 
|  |                                                                                                  
|· | Report
      and Accounts for Holmes Trustees Limited for the year ended December 31,
      2005.
|  |                                                                                                  

B. Capitalization and Indebtedness

Not applicable
  to annual reports on Form 20-F.

C. Reasons for the Offer and Use of
  Proceeds

Not
  applicable to annual reports on Form 20-F.

D. Risk Factors

The
Issuer Notes do not represent an obligation and are not the responsibility of
any person other than the Issuer

The Issuer Notes do not
represent an obligation and are not the responsibility of any of Abbey National
plc or any of its affiliates, Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, the other underwriters or any of their respective
affiliates, Citibank, N.A., the other issuers, Trustees, the Note Trustee or any
other party to the transaction other than the Issuer.

The
Issuer has a limited set of resources available to it to make payments on the
Issuer Notes

The Issuers ability to
make payments of principal and interest on the Issuer Notes and to pay its
operating and administrative expenses will depend primarily on the funds being
received under the issuer intercompany loan. In addition, the Issuer will rely
on the issuer dollar currency swaps and the issuer Swiss franc currency swaps to
hedge the currency exposure with respect to the Issuer Notes.

If Funding is unable to
pay in full on any interest payment date (a) the interest on any term advance,
(b) the operating and administrative expenses and/or (c) the principal payments
in respect of the Funding liquidity reserve fund term advances, and in the event
that the seller suffers a certain ratings downgrade, Funding may draw money from
the Funding liquidity reserve fund.

The Issuer does not have
any other significant sources of funds available to meet its obligations under
the Issuer Notes and/or any other payments ranking in priority to the Issuer
Notes.

Funding
is not obliged to make payments on the issuer term advances if it does not have
enough money to do so which could adversely affect payments on the Issuer Notes

Fundings
ability to pay amounts due on the issuer term advances will depend upon:

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|· | Funding receiving
      enough funds from the Funding share percentage of the revenue and principal
      receipts on the loans included in the mortgages trust on or before each
      interest payment date;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                               
|· | Funding
        receiving the required funds from the Funding swap provider;                                                                                                                                  
|  |                                                                                                                                                                                                               
|· | the
        amount of funds credited to the reserve funds; and                                                                                                                                                
|  |                                                                                                                                                                                                               
|· | the allocation
      of funds between the other term advances, the issuer term advances and any
      new term advances.                                                                                      
|  |                                                                                                                                                                                                               

According to the terms
of the mortgages trust deed, Trustees is obliged to pay to Funding the Funding
share percentage of revenue receipts on the loans by crediting such amounts to
the Funding GIC account on each distribution date. Trustees is obliged to pay
Funding principal receipts on the loans by crediting such amounts to the Funding
GIC account as and when required pursuant to the terms of the mortgages trust
deed.

Funding will be obliged
to pay revenue receipts due to the Issuer under the issuer intercompany loan
only to the extent that it has revenue receipts left over after making payments
ranking in priority to the Issuer, such as payments of certain fees and expenses
of Funding and payments on certain higher ranking term advances under the other
intercompany loans.

Funding will be obliged
to pay principal receipts due to the Issuer under the issuer intercompany loan
only to the extent that it has principal receipts available for that purpose
after repaying amounts ranking in priority to the Issuer (including repaying
certain higher ranking term advances under the other intercompany loans).

If there is a shortfall
between the amounts payable by Funding to the Issuer under the Intercompany Loan
Agreement and the amounts payable by the Issuer on the Issuer Notes, noteholders
may, depending on what other sources of funds are available to the Issuer and to
Funding, not receive the full amount of interest and/or principal which would
otherwise be due and payable on the Issuer Notes.

Failure
by Funding to meet its obligations under the Intercompany Loan Agreement would
adversely affect payments on the Issuer Notes

If Funding does not make
payments due and payable on the issuer intercompany loan, then the Issuer may
not have enough money to make payments on the Issuer Notes. In addition the
Issuer will have only limited recourse to the assets of Funding. If Funding does
not pay amounts under the issuer intercompany loan because it does not have
enough money available, such amounts will be deemed not to be due and payable,
so there will not be an event of default under the issuer intercompany loan, and
the Issuer will not have recourse to the assets of Funding in that instance.

On the
final repayment date of the issuer intercompany loan any outstanding amounts in
respect of the term AA advances and the term BBB advances will be extinguished,
which would cause a loss on the class B notes and the class C notes

The transaction has been
structured in the expectation that on the final repayment date of the
intercompany loan in 2040, the interest and principal due and payable on the
term AA advances and the term BBB advances should be an amount equal to the sum
available to pay all outstanding interest and/or principal (including interest
and/or principal deferred and unpaid) on the term AA advances and the term BBB
advances (after paying amounts of a higher order of priority as required by the
Funding priority of payments).

If there is a shortfall
  between the amount available to pay such interest and/or principal and the amount
  required to pay all outstanding interest and/or principal on the term AA advances
  and the term

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BBB advances,
then the shortfall will be deemed to be not due and payable under the
Intercompany Loan Agreement and the Issuer will not have any claim against
Funding for the shortfall.

If there is such a
shortfall in interest and/or principal payments under the Intercompany Loan
Agreement, noteholders may not receive the full amount of interest and/or
principal which would otherwise be due and payable on the class B Issuer Notes
or the class C Issuer Notes outstanding.

Although enforcement of the Issuer security will be possible following
the occurrence of an event of default in the Issuers obligations, the proceeds
of that enforcement may not be enough to make all payments due on the Issuer
Notes

The Issuer has no
recourse to the assets of Funding unless Funding has also defaulted on its
obligations under the issuer intercompany loan and the Funding security has been
enforced.

If the security created
as required by the Issuer deed of charge is enforced, the proceeds of
enforcement may be insufficient to pay all principal and interest due on the
Issuer Notes. The noteholders may still have an unsecured claim against the
Issuer for the shortfall, but there is no guarantee that the Issuer will have
sufficient (or any) funds to pay that shortfall.

There
is no assurance that the subordination rules will protect the holders of class A
Issuer notes or the holders of class B Issuer Notes from all risk of loss

The transaction has been
structured in the expectation that each lower numbered series of Issuer Notes
will be redeemed before a higher numbered series of Issuer Notes.

However, there is no
assurance that any lower numbered series of Issuer Notes will be redeemed before
a higher numbered series of Issuer Notes. Redemption of the Issuer Notes is
ultimately dependent on, among other things, repayment and redemptions on the
loans and on the term advance rating of the issuer term advances. Further, if on
any interest payment date, amounts are due and payable in respect of an earlier
alphabetised class of Issuer Notes of any series and amounts are payable in
respect of one or more later alphabetised class of Issuer Notes of any series,
then payments of principal will be made on the earlier alphabetised class of
Issuer Notes in priority to payments of principal on the later alphabetised
class or classes of Issuer Notes. See Subordination of other note classes may
not protect noteholders from all risk of loss.

Holdings may establish another company, Funding 2, which may become an
additional beneficiary under the mortgages trust

Holdings may establish a
new entity, Funding 2, which may issue new notes from time to time and use the
proceeds to make a payment to the seller to acquire an interest in the trust
property rather than lending the proceeds to Funding, subject to the agreement
of the seller and Funding, as existing beneficiaries of the mortgages trust. If
Funding 2 becomes a beneficiary of the mortgages trust then the percentage
shares of Funding and the seller in the trust property may decrease. The
introduction of Funding 2 will not cause a reduction in the principal amount of
assets backing the Issuer Notes. The security trustee will only be entitled to
consent to any modifications to the transaction documents caused by the
introduction of Funding 2, if it is satisfied that such modifications would not
adversely affect the then current ratings of the notes.

If Funding 2 becomes a
beneficiary of the mortgages trust then the seller, Funding and Funding 2 would
each have a joint and undivided interest in the trust property but their
entitlement to the proceeds from the trust property would be in proportion to
their respective shares of the trust property. On each distribution date
Trustees would distribute interest and principal receipts to one, two or all
three beneficiaries, depending on the terms of the mortgages trust.

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It is anticipated that
Funding 2 would issue notes directly to investors from time to time backed by
its share of the trust property. Current noteholders would not have a direct or
indirect interest in Funding 2's share of the trust property.

Amendments would be made
to a number of the issuer transaction documents as a result of the inclusion of
Funding 2 as a beneficiary of the mortgages trust. In particular (but without
limitation), amendments would be made to:

| | · | the mortgage sale
        agreement to enable the purchase by Funding 2 of interests in the trust
        property;                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                             
| | · | the
        mortgages trust deed (i) to establish Funding 2 as a beneficiary of the
        trust, (ii) to enable changes in Funding 2's share of the trust property
        from time to time and (iii) to regulate the distribution of interest and
        principal receipts in the trust property to Funding 2 and the other beneficiaries;
        and
| |   |                                                                                                                                                                                                                                                                                                                                                             
| | · | the cash management agreement
        to regulate the application of monies to Funding 2.                                                                                                                                                                                                                                                                   

There may be conflicts
of interest between Funding and Funding 2, in which case it is expected that
Trustees would follow the directions given by the relevant beneficiary that has
the largest share of the trust property at that time. The interests of Funding
may not prevail, which may adversely affect current noteholders interests.

If
Funding enters into new intercompany loan agreements, then the new term advances
may rank ahead of issuer term advances as to payment, and accordingly new notes
may rank ahead of Issuer Notes as to payment

It is likely that
Holdings will establish new issuers to issue new notes to investors. The
proceeds of each new issue will be used by the new issuer to make a new
intercompany loan to Funding. Funding will use the proceeds of the new
intercompany loan either to:

| | · | pay the seller for
        new loans and their related security to be assigned to Trustees;                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                      
| | · | pay the seller for a part of the sellers share of the trust property
        to be assigned to Funding;                                                                                             
| |   |                                                                                                                                                                                                      
| | · | refinance an intercompany loan or intercompany loans outstanding
        at that time (and if the Issuers intercompany loan to Funding is refinanced,
        noteholders could be repaid early); or
| |   |                                                                                                                                                                                                      
| | · | deposit some of those
        proceeds in one or more of the reserve funds.                                                                                                                          

The order in which
Funding pays principal and interest to the Issuer on the issuer term advances
and to any new issuer on the new term advances will depend primarily on the
designated ratings of those term advances. In general, the term advances with
the highest term advance rating will be paid ahead of lower rated term advances,
subject to their relative scheduled repayment dates. For example, Funding will
pay interest due on the issuer term AAA advances proportionally and equally with
the interest due on any new term AAA advances and ahead of payments of interest
due on any term advance with a lower term advance rating than AAA (including,
for the avoidance of doubt, any issuer term AA advance and any issuer term BBB
advance). Similarly, Funding will, in general, repay principal amounts due on
the issuer term advances and any new term advances in accordance with their
respective term advance ratings, subject to their relative scheduled repayment
dates. For example, principal repayments due on an issuer term AAA advance
generally will be made before principal repayments due on a new term AA advance.
This principle is subject to a number of exceptions, however, which are designed
primarily to provide some protection that scheduled repayments of principal on
the issuer term advances will not materially affect payments of principal on the
previous term advances and in turn would not be materially affected by payments
of principal on any new term advances.

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The term advance ratings
designated to the issuer term advances on the closing date will not change even
if the ratings assigned to the corresponding classes of Issuer Notes change.

The current payment and
security priorities of the Issuer Notes relative to each other as set out in the
Issuer deed of charge and the Issuer cash management agreement will not change
as a result of an issue of new notes by a new issuer, because that new issue
will be separately documented. However, Funding may be required to repay new
issuer amounts owing under a new term advance ahead of or in the same order of
priority as amounts owing to the Issuer on the issuer term advances, depending
on the term advance rating, the scheduled repayment date of that new term
advance and certain other rules regarding the repayment of principal by Funding.
If this is the case, then the relevant new noteholders will be paid before the
relevant current noteholders.

Funding
has entered into other intercompany loan agreements with other issuers, and
certain of the term advances in those other intercompany loans rank ahead of
certain of the issuer term advances in the issuer intercompany loan as to
payment, and accordingly some of the Issuer Notes issued by the other issuers
rank ahead of certain of the Issuer Notes as to payment

The other issuers issued
notes to investors, the proceeds of which were used by the other issuers to make
other intercompany loans to Funding. Funding used the proceeds of the
intercompany loan from the Issuer to pay the seller for loans and their related
security assigned to Trustees which comprised its original share of the trust
property. Funding used the proceeds of the other intercompany loans from certain
other Holmes Financing issuers to pay the seller for the acquisition of
additional parts of the sellers share of the trust property (resulting in a
corresponding decrease in the sellers share of the trust property) and from
certain other Holmes Financing issuers to pay the seller for loans and their
related security assigned to Trustees which constituted an addition to Fundings
already existing share of the trust property.

The order in which
Funding pays principal and interest to the Issuer on the issuer term advances
and to the other issuers on the term advances depends primarily on the
designated ratings of those term advances. In general, term advances with the
highest term advance rating will be paid ahead of lower rated term advances
subject to their relative scheduled repayment dates. For example, Funding will
pay interest due on the issuer term AAA advances proportionally and equally with
the interest due on any previous term AAA advances and ahead of payments of
interest due on any term advance with a lower term advance rating than AAA
(including, for the avoidance of doubt, any term AA advance or term BBB
advance). Similarly, Funding will, in general, repay principal amounts due on
the issuer term advances and the term advances in accordance with their
respective term advance ratings. For example, principal repayments due on an
issuer term AAA advance generally will be made before principal repayments due
on a previous term AA advance. This principle is subject to a number of
exceptions, however, which are designed primarily to provide some protection
that scheduled repayments of principal on the issuer term advances will not
materially affect payments of principal on the previous term advances and on new
term advances and in turn would not be materially affected by payments of
principal on the previous term advances and any new term advances.

The term advance ratings
designated to the term advances on the previous closing dates will not change
even if the ratings assigned to the corresponding classes of other notes change.

The current payment and
security priorities of the Issuer Notes relative to each other as set out in the
Issuer deed of charge and the Issuer cash management agreement are not affected
as a result of the issues of previous notes by the other issuers, because the
other issues were separately documented. However, Funding may be required to
repay to the other issuers amounts which are owing under one or more other term
advances ahead of or in the same order of priority as amounts owing to the
Issuer on the issuer term advances, depending on the term advance rating, the
scheduled repayment date of that other term advance and other rules regarding
the repayment of principal by Funding.

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New
issuers and new start-up loan providers will share in the same security granted
by Funding to the Issuer, and this may adversely affect payments on the Issuer
Notes

If Funding enters into a
new intercompany loan agreement, then if required it will also enter into a new
start-up loan agreement with a new start-up loan provider and the security
trustee. If Funding is required by the rating agencies, Funding may use part of
the proceeds of the new start-up loan to further fund one or more of the
existing reserve funds.

Any new issuer and any
new start-up loan provider will become party to the Funding deed of charge and
will be entitled to share in the security granted by Funding for its benefit
(and the benefit of the other Funding secured creditors) under the Funding deed
of charge. In addition, the liabilities owed to the Funding liquidity facility
provider and the Funding swap provider which are secured by the Funding deed of
charge may increase each time that Funding enters into a new intercompany loan
agreement. This could ultimately cause a reduction in the payments noteholders
receive on their Issuer Notes.

The
other issuers, the Funding swap provider and the other start-up loan providers
already share in the security granted by Funding to the Issuer, which may
adversely affect payments on the Issuer Notes

Funding has entered into
the other intercompany loan agreements and it also entered into eight start up
loan agreements with the start-up loan provider and the security trustee.
Funding used part of the proceeds of these start-up loans to fund the first
reserve fund.

The other issuers and
the start-up loan provider are parties to the Funding deed of charge and are
entitled to share in the security granted by Funding for the benefit of the
Funding secured creditors (including the Issuer). In addition, the liabilities
owed to the Funding liquidity facility provider and the Funding swap provider
which are secured by the Funding deed of charge may increase each time that
Funding enters into a new intercompany loan agreement. These factors could
ultimately cause a reduction in the payments noteholders receive on their Issuer
Notes.

There
may be conflicts between the Issuer, the other issuers and any new issuers, and
the Issuers interests may not prevail which may adversely affect payments on
the Issuer Notes

The security trustee
will exercise its rights under the Funding deed of charge only in accordance
with directions given by the issuers (which could be one or more of the Issuer,
the other issuers and, if Funding enters into new intercompany loans, any new
issuer) that have the highest-ranking outstanding term advances, provided that
the security trustee is indemnified to its satisfaction.

If the security trustee
receives conflicting directions, it will follow the directions given by the
relevant issuers representing the largest principal amount outstanding of
relevant term advances. If the Issuer is not in the group representing that
largest principal amount, then its interests may not prevail. This could
ultimately cause a reduction in the payments noteholders receive on their Issuer
Notes. For example, if the term advances with the highest designated term
advance rating at the time of a direction are the term AAA advances, then, in
the event of conflicting directions being given by issuers with outstanding term
AAA advances, the security trustee will follow the direction given by those
issuers owed the largest principal amount outstanding of term AAA advances.

As new
loans are assigned to Trustees, the characteristics of the trust property may
change from those existing at the closing date, and those changes may adversely
affect payments on the Issuer Notes

There is no guarantee
  that any new loans assigned to Trustees will have the same characteristics as
  the loans in the portfolio as at the closing date. In particular, new loans
  may have different payment characteristics than the loans in the portfolio as
  at the closing date. The ultimate effect of this could be to

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delay or reduce
the payments noteholders receive on the Issuer Notes. However, new loans will be
required to meet certain criteria. These criteria may be modified after the
closing date and noteholders consent to such modifications will not be obtained
provided that the security trustee is satisfied that the then current ratings of
the Issuer Notes will not be adversely affected by the proposed modifications.

The
yield to maturity of the Issuer Notes may be adversely affected by prepayments
or redemptions on the loans

The yield to maturity of
the Issuer Notes of each class will depend mostly on (a) the amount and timing
of payment of principal on the loans and (b) the price paid by the noteholders
of each class of Issuer Notes. The yield to maturity of the Issuer Notes of each
class may be adversely affected by a higher or lower than anticipated rate of
prepayments on the loans.

No assurance can be
given that Funding will accumulate sufficient funds during the cash accumulation
periods or receive sufficient funds from its share in Trustees on a single
interest payment date relating to the issuer term AAA advances to enable it to
repay such issuer term advances to the Issuer so that the corresponding classes
of the Issuer Notes will be redeemed in their entirety on their scheduled
redemption dates.

During any relevant cash
accumulation period for any relevant term AAA advance, no repayments of
principal will be made on the issuer term AA advances or the issuer term BBB
advances. This means that there will be no corresponding repayments of principal
on the class B Issuer Notes or the class C Issuer Notes.

The extent to which
sufficient funds are saved by Funding during a cash accumulation period or a
scheduled amortisation period or received by it from its share in the mortgages
trust on a scheduled repayment date will depend on whether the actual principal
prepayment rate of the loans is the same as the assumed principal prepayment
rate. If Funding is not able to save enough money during a cash accumulation
period or a scheduled amortisation period, or does not receive enough money from
its share in the mortgages trust on a scheduled repayment date, to repay the
relevant issuer term AAA advance (and if it is unable to make a drawing on the
Funding liquidity facility or the first reserve fund to make good the shortfall)
so that the Issuer can redeem the class A Issuer Notes of the corresponding
series on their respective scheduled redemption date(s), then Funding will be
required to pay to the Issuer on those scheduled redemption dates only the
amount that it has actually saved or received. Any shortfall will be deferred
and paid on subsequent interest payment dates when Funding has money available
to make the payment. In these circumstances, unless the Issuer is able to make a
drawing on the issuer liquidity facility, there will be a variation in the yield
to maturity of the relevant class of Issuer Notes.

The
Issuers ability to redeem the class A Issuer Notes in full on their scheduled
redemption dates is affected by the rate of prepayment on the loans

The rate of prepayment
of loans is influenced by a wide variety of economic, social and other factors,
including prevailing mortgage market interest rates, the availability of
alternative financing programs, local and regional economic conditions and
homeowner mobility. For instance, prepayments on the loans may be due to
borrowers refinancing their loans and sales of properties by borrowers (either
voluntarily or as a result of enforcement action taken). In addition, if the
seller is required to repurchase a loan or loans under a mortgage account and
their related security because, for example, one of the loans does not comply
with the loan warranties in the mortgage sale agreement, then the payment
received by Trustees will have the same effect as a prepayment of all of the
loans under the mortgage account. Because these factors are not within its
control or the control of Funding or Trustees, the Issuer cannot give any
assurances as to the level of prepayments that the portfolio may experience.

Variation in the rate
  of prepayments of principal on the loans may affect each class of Issuer Notes
  differently depending upon amounts already repaid by Funding to the Issuer under
  the issuer

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intercompany
loan and whether a trigger event has occurred, or a loan is subject to a product
switch or a further advance or the security granted by the Issuer under the
Issuer deed of charge has been enforced. If prepayments on the loans occur less
frequently than anticipated, then there may not be sufficient funds available to
redeem the class A Issuer Notes in full on their respective scheduled redemption
dates.

The
seller may change the lending criteria relating to loans which are subsequently
assigned to Trustees which could affect the characteristics of the trust
property and which may adversely affect payments on the Issuer Notes

Each of the loans was
originated in accordance with the sellers lending criteria at the time of
origination. These lending criteria consider a variety of factors such as a
potential borrowers credit history, employment history and status and repayment
ability, as well as the value of the property to be mortgaged. In the event of
the assignment of any new loans and new related security to Trustees, the seller
will warrant that those new loans and new related security were originated in
accordance with the sellers lending criteria at the time of their origination.
However, the seller retains the right to revise its lending criteria as
determined from time to time, and so the lending criteria applicable to any loan
at the time of its origination may not be or have been the same as those when
other loans were originated. If new loans that have been originated under
revised lending criteria are assigned to Trustees, the characteristics of the
trust property could change. This could lead to a delay or a reduction in the
payments received on the Issuer Notes.

The
seller has introduced new procedures relating to investigations and searches for
remortgages which could affect the characteristics of the trust property and
which may adversely affect payments on the Issuer Notes

The seller no longer
requires a solicitor or licensed or qualified conveyancer to conduct a full
investigation of the title to a property in all cases. Where the borrower is
remortgaging there will be a more limited form of investigation of title for
properties located in England, Wales and Scotland, in particular in the case of
registered land in England and Wales (e.g., confirming that the borrower is the registered proprietor of the
property and the description of the property corresponds with the entries on the
Land Registrys register) and confirming such other matters as are required by a
reasonable, prudent mortgage lender. Properties which have undergone such a
limited investigation may be subject to matters which would have been revealed
by a full investigation of title and which may have been remedied or, if
incapable of remedy, may have resulted in the properties not being accepted as
security for a loan had such matters been revealed. The introduction of loans
secured by such properties into the trust property could result in a change of
the characteristics of the trust property. This could lead to a delay or a
reduction in the payments received on the Issuer Notes.

The
timing and amount of payments on the loans could be affected by various factors
which may adversely affect payments on the Issuer Notes

The loans are affected
by credit, liquidity and interest rate risks. Various factors influence mortgage
delinquency rates, prepayment rates, repossession frequency and the ultimate
payment of interest and principal, such as changes in the national or
international economic climate, regional economic or housing conditions, changes
in tax laws, interest rates, inflation, the availability of financing, yields on
alternative investments, political developments and government policies. Other
factors in borrowers individual, personal or financial circumstances may affect
the ability of borrowers to repay loans. Loss of earnings, illness, divorce and
other similar factors may lead to an increase in delinquencies by and
bankruptcies of borrowers, and could ultimately have an adverse impact on the
ability of borrowers to repay loans.

If a borrower fails to
repay its loan and the related property is repossessed, the likelihood of there
being a net loss on disposition of the property is adversely affected by a
higher loan-to-value ratio. In addition, the ability of a borrower to sell a
property given as security for a loan at a price sufficient to

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repay the
amounts outstanding under the loan will depend upon a number of factors,
including the availability of buyers for that property, the value of that
property and property values in general at the time.

The portfolio may also
be subject to geographic concentration risks. To the extent that specific
geographic regions within the United Kingdom have experienced or may experience
in the future weaker regional economic conditions and housing markets than other
regions, a concentration of the loans in such a region may be expected to
exacerbate all risks relating to the loans described in this section. The
economy of each geographic region within the United Kingdom is dependent on
different mixtures of industries. Any downturn in a local economy or particular
industry may adversely affect the regional employment levels and consequently
the repayment ability of the borrowers in that region or the region that relies
most heavily on that industry. Any natural disasters in a particular region may
reduce the value of affected mortgaged properties. This may result in a loss
being incurred upon sale of the mortgaged property. These circumstances could
affect receipts on the loans and ultimately result in losses on the Issuer
Notes.

The principal source of
income for repayment of the Issuer Notes by the Issuer is the issuer
intercompany loan. The principal source of income for repayment by Funding of
the issuer intercompany loan is its interest in the loans held on trust by
Trustees for Funding and the seller. If the timing and payment of the loans is
adversely affected by any of the risks described above, the payments on the
Issuer Notes could be reduced or delayed.

The
occurrence of trigger events and enforcement of the Issuer security may
adversely affect the timing of the scheduled redemption of the class A Issuer
Notes

If no trigger event has
occurred and the Issuer security has not been enforced, then payments of
principal will not occur on the class A Issuer Notes of each series before their
respective scheduled redemption dates.

If a trigger event
occurs or the Issuer security is enforced prior to the scheduled redemption
dates for the class A Issuer Notes of each series, then the relevant classes of
Issuer Notes outstanding will not be repaid on their scheduled redemption dates
but will be repaid on each interest payment date from monies received from
Funding on the issuer term AAA advances of the corresponding series as described
in the following three risk factors.

If an
asset trigger event occurs, the class A notes will not be repaid on their
scheduled redemption dates

When an asset trigger
event has occurred, Trustees will distribute principal receipts on the loans to
Funding and the seller proportionally and equally based on their percentage
shares of the trust property (that is, the Funding share percentage and the
seller share percentage). When an asset trigger event has occurred, Funding will
repay:

| | first, the issuer term AAA advances and the other term AAA advances of each
      series proportionally and equally, until all of those term AAA term advances
      are fully repaid;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                       
| | then, the issuer term AA advances and the other term AA advances of each series
      proportionally and equally, until all of those term AA term advances are
      fully repaid;    
| |                                                                                                                                                                                       
| | then, the other term A advances of each series proportionally and equally,
      until all of those term A term advances are fully repaid; and                                        
| |                                                                                                                                                                                       

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|                                                                                                                                                                                                                                                                                                                                                                           | then,the issuer
      term BBB advances and the other term BBB advances of each series proportionallyand equally, until
      all of those term BBB term advances are fully repaid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|This
        order of priority of payments may change if Funding enters into new intercompany
        loan agreements. If an asset trigger event occurs, certain class A Issuer
        Notes then outstanding may not be repaid on their scheduled redemption
        dates, and there is also a risk that they will not be repaid by their
        final maturity dates.
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|If a non-asset trigger event occurs, the class A Issuer Notes then
      outstanding will not be repaid on their scheduled redemption dates                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|If a non-asset trigger
      event has occurred, Trustees will distribute all principal receipts to Funding
      until the Funding share percentage of the trust property is zero. When a
      non-asset trigger event has occurred, Funding will repay:                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | first,the series
      1 term AAA advance made by Holmes Financing (No. 9) PLC until that series
      1 termAAA advance is fully
      repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      2 term AAA advance made by the Issuer until that series 2 term AAA advance
      isfully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      3A1 term AAA advance made by Holmes Financing (No. 5) PLC until that series3A1 term AAA advance
      is fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,in no order
      of priority between them but in proportion to the respective amounts due,
      the series3 term AAA advance
      and the series 4 term AAA advances made by Holmes Financing (No. 6) PLC
      and the series 4 term AAA advance made by the Issuer, until all of those
      term AAA advances are fully repaid;                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      3 term AAA advances made by Holmes Financing (No. 1) PLC until those series
      3  term AAA advances
      are fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      2 term AAA advance made by Holmes Financing (No. 8) PLC until that series
      2term AAA advance
      is fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,in no order
      of priority between them but in proportion to the respective amounts due,
      the series  2 term AAA advance
      made by Holmes Financing (No. 9) PLC and the series 4 term AAA advance made
      by Holmes Financing (No.1) PLC until all of those term AAA advances are
      fully repaid;                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      4 term AAA advance made by Holmes Financing (No. 9) PLC until that series
      4 termAAA advance is fully
      repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      3 term AAA advance made by Holmes Financing (No. 8) PLC until that series
      3 term AAA advance is fully
      repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      3 term AAA advance made by Holmes Financing (No. 7) PLC until that series
      3 term AAA advance is fully
      repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      3 term AAA advances made by Holmes Financing (No. 9) PLC until those series
      3term AAA advances
      are fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,the series
      3 term AAA advance made by Holmes Financing (No. 2) PLC until that series
      3 term AAA advance is fully
      repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                           | then,in no order
      of priority between them but in proportion to the respective amounts due,
      the series 4 term AAA advance
      made by Holmes Financing (No. 2) PLC, the series 3 term AAA advance made
      by Holmes Financing
      (No. 3) PLC, the series 3 term AAA advances made by the Issuer, the series
      3A2 term AAA advance
      made by Holmes Financing (No. 5) PLC, the series 5 term AAA advance
      made by Holmes Financing
      (No. 6) PLC, the series 4 term AAA advances made by Holmes Financing (No. 7)
      PLC and the series 4 term AAA advances made by Holmes Financing (No. 8)
      PLC, until all of
      those term AAA advances are fully repaid;
|                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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|                                                                                                                                                                                                                                                                                                                                                                                                                            | then,the issuer term AA advances and the other term AA advances, in no
      order of priority betweenthem
      but in proportion to the respective amounts due, until all of those term
      AA advances are fully repaid;      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | then,the other term A advances in no order of priority between them but
      in proportion to therespective amounts due, until all of those term A advances are fully
      repaid; and                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | finally,the issuer term BBB advances and the other term BBB advances, in
      no order of prioritybetween
      them but in proportion to the respective amounts due, until all of those
      term BBB advances are fully repaid.
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|This
      order of priority of payments will change if Funding enters into new intercompany
      loan agreements. If a non-asset trigger event occurs, the class A Issuer
      Notes of each series will not be repaid on their scheduled redemption dates.                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|If
      the issuer security is enforced, the class A Issuer Notes then outstanding
      will not be repaid on their scheduled redemption dates                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|If the Issuer security
      is enforced, then Trustees will distribute funds as required under the terms
      of the transaction agreements. In these circumstances, any class A Issuer
      Notes then outstanding will not be repaid on their scheduled redemption
      dates and there is also a risk that those class A Issuer Notes may not be
      repaid by their final maturity dates.                        
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|Loans
      subject to product switches and further advances will be repurchased by
      the seller from Trustees, which will affect the prepayment rate of the loans,
      and this may affect the yield to maturity of the Issuer Notes                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|If
      a loan is subject to a product switch or a further advance, then the seller
      will be required to repurchase the loan or loans under the relevant mortgage
      account and their related security from Trustees at a price equal to the
      outstanding principal balance of those loans together with any arrears of
      interest and accrued and unpaid interest and expenses to the date of purchase.
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|A
      loan will be subject to a product switch if the borrower and the seller
      agree on or the servicer issues an offer for, and the borrower accepts,
      a variation in the financial terms and conditions applicable to the relevant
      borrowers loan, other than:                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | ·                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | ·                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | ·                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | ·                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            | ·                                                                                                                                                                                                                                  

|
|

A
  loan will be subject to a further advance if an existing borrower requests a
  further amount to be lent to him or her under the mortgage in circumstances
  where the seller has a discretion to, and does, grant that request. A drawing
  under a flexible loan will not constitute a further advance.

The
  yield to maturity of the Issuer Notes may be affected by the repurchase of loans
  subject to product switches and further advances.

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Ratings
assigned to the Issuer Notes may be lowered or withdrawn after noteholders
purchase the Issuer Notes, which may lower the market value of the Issuer Notes

The ratings assigned to
each class of Issuer Notes address the likelihood of full and timely payment to
noteholders of all payments of interest on each interest payment date under
those classes of Issuer Notes. The ratings also address the likelihood of (in
the case of Standard & Poors and Fitch) timely, or (in the case of
Moodys) ultimate, payment of principal on the final maturity date of each
class of Issuer Notes. Any rating agency may lower its rating or withdraw its
rating if, in the sole judgment of the rating agency, the credit quality of the
Issuer Notes has declined or is in question. If any rating assigned to the
Issuer Notes is lowered or withdrawn, the market value of the Issuer Notes may
be reduced.

A change to the ratings
assigned to each class of Issuer Notes will not affect the term advance ratings
assigned to each issuer term advance under the issuer intercompany loan.

Subordination of other note classes may not protect noteholders from all
risk of loss

The class B Issuer Notes
and class C Issuer Notes are subordinated in right of payment of interest to the
class A Issuer Notes. The class C Issuer Notes are subordinated in right of
payment of interest to the class B Issuer Notes.

There is no assurance
that these subordination rules will protect the holders of class A Issuer Notes
from all risk of loss or the holders of class B Issuer Notes from all risk of
loss.

Principal payments on the class B Issuer Notes and the class C Issuer
Notes will be deferred in some circumstances

Principal repayments on
the issuer term AA advances and/or the issuer term BBB advances will be deferred
in the following circumstances:

|· | if a principal loss
      has been recorded on the principal deficiency ledger in respect of any termAA
      advances, any term A advances or any term BBB advances; or                                                                                                                                                                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                         
|· | if the first
      reserve fund has been debited on or prior to the relevant interest payment
      date forthe
      purposes of curing a principal deficiency in respect of any term AA advances,
      any term Aadvances
      or any term BBB advances and the first reserve fund has not been replenished
      by acorresponding amount on the relevant interest payment date; or
|  |                                                                                                                                                                                                                                                                                                                                                                                         
|· | if, as at
      the relevant interest payment date, the total outstanding principal balance
      of loans inthe
      mortgages trust, in respect of which the aggregate amount in arrear is more
      than threetimes
      the monthly payment then due, is more than five per cent. of the total outstandingprincipal balance of loans in the mortgages trust.                     

In these circumstances,
the issuer term BBB advances and, as applicable, the issuer term AA advances
will not be entitled to principal repayments: (i) until the relevant
circumstance as described in this risk factor has been remedied (if ever); or
(ii) during such times that there are any term AAA advances outstanding.

This means that payments
of principal on the class C Issuer Notes of all series and, as applicable, the
class B Issuer Notes of all series, will be deferred until the earlier of the
time when the relevant circumstance described in this risk factor has been
remedied (if ever), the date on which the term AAA advances are repaid in full
and the maturity date of the relevant Issuer Notes.

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Series
3 Issuer Notes may be subject to risk if the trust property deteriorates after
repayment of the series 2 Issuer Notes

If the loans comprising
the trust property do not perform as expected at any time after the repayment in
full of the series 2 Issuer Notes, then the series 3 Issuer Notes may not be
repaid in full; provided that, following the occurrence of a non-asset trigger
event (but prior to enforcement), the Issuer Notes will be redeemed by reference
to their final maturity date; and provided further that both following the
occurrence of an asset trigger event (but prior to enforcement) and following
enforcement of the Issuer security, the Issuer Notes of each series will be
repaid according to their respective classes and pro rata within each class,
following the occurrence of a non-asset trigger event (but prior to
enforcement), the Issuer Notes will be redeemed by reference to their final
maturity date; and provided further that both following the occurrence of an
asset trigger event (but prior to enforcement) and following enforcement of the
Issuer security, the Issuer Notes of each series will be repaid according to
their respective classes and pro rata within each class.

Noteholders may be subject to risks relating to exchange rates on the
Issuer Notes

Investors will pay for
the series 3 class A2 Issuer Notes, the series 3 class B Issuer Notes and the
series 3 class C Issuer Notes in US dollars, but the issuer term advances to be
made by the Issuer to Funding and repayments of principal and payments of
interest by Funding to the Issuer under the issuer intercompany loan will be in
sterling.

To hedge its currency
exchange rate exposure, including the interest rate exposure connected with that
currency exposure, on the closing date the Issuer will enter into the issuer
dollar currency swaps for the series 3 class A2 Issuer Notes, the series 3 class
B Issuer Notes and the series 3 class C Issuer Notes with the issuer dollar
currency swap providers.

If the Issuer fails to
make timely payments of amounts due under an issuer dollar currency swap, then
the Issuer will have defaulted under that issuer currency swap. The issuer
dollar currency swap providers are obliged only to make payments under the
issuer dollar currency swaps as long as the Issuer make payments under them. If
the issuer dollar currency swap providers are not obliged to make payments, or
if an issuer dollar currency swap provider defaults in its obligations to make
payments, of amounts in US dollars equal to the full amount to be paid by that
issuer dollar currency swap provider on the payment dates under the relevant
issuer dollar currency swap (which are the same dates as the interest payment
dates), the Issuer will be exposed to changes in US dollar/sterling currency
exchange rates and in the associated interest rates on these currencies. Unless
a replacement issuer dollar currency swap is entered into, the Issuer may have
insufficient funds to make payments due on the Issuer Notes of any class and any
series that are then outstanding.

Termination payments on the issuer dollar currency swaps, the issuer
Swiss franc currency swap or the issuer euro currency swap may adversely affect
the funds available to make payments on the Issuer Notes

If any of the issuer
dollar currency swaps, the issuer Swiss franc currency swap or the issuer euro
currency swap terminates, the Issuer may as a result be obliged to pay a
termination payment to the relevant issuer dollar currency swap provider, the
issuer Swiss franc currency swap or the issuer euro currency swap provider, as
the case may be. The amount of the termination payment will be based on the cost
of entering into a replacement issuer dollar currency swap, the issuer Swiss
franc currency swap or the issuer euro currency swap, as the case may be. Under
the Intercompany Loan Agreement, Funding will be required to pay the Issuer an
amount equal to any termination payment due from the Issuer to the relevant
issuer dollar currency swap provider, the issuer Swiss franc currency swap
provider or the issuer euro currency swap provider, as the case may be. Funding
will also be obliged to pay the Issuer any extra amounts which the Issuer may be
required to pay to enter into a replacement swap.

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The Issuer and Funding
cannot give noteholders any assurance that Funding will have the funds available
to make that payment or that the Issuer will have sufficient funds available to
make any termination payment under any of its issuer currency swaps or to make
payments to noteholders in respect of the relevant series and class of Issuer
Notes. Nor can the Issuer give noteholders any assurance that it will be able to
enter into a replacement swap, or if one is entered into, that the credit rating
of the replacement issuer dollar currency swap provider, the issuer Swiss franc
currency swap provider or issuer euro currency swap provider, as the case may
be, will be sufficiently high to prevent a downgrading of the then current
ratings of the Issuer Notes by the rating agencies.

Except where the
relevant issuer dollar currency swap provider, the issuer Swiss franc currency
swap provider or the issuer euro currency swap provider, as the case may be, has
caused the relevant issuer dollar currency swap, the issuer Swiss franc currency
swap or the relevant issuer euro currency swap, as applicable, to terminate by
its own default or following a downgrade termination event, any termination
payment due from the Issuer will rank equally not only with payments due to the
holders of the series and class of Issuer Notes to which the relevant swap
relates but also with payments due to the holders of any other series and class
of Issuer Notes which rank equally with the series and class of Issuer Notes to
which the relevant swap relates. Any additional amounts required to be paid by
the Issuer following termination of the relevant issuer dollar currency swap,
the issuer Swiss franc currency swap or the relevant issuer euro currency swap,
as the case may be (including any extra costs incurred (for example, from
entering into spot currency or interest rate swaps) if the Issuer cannot
immediately enter into a replacement swap) will also rank equally not only with
payments due to the holders of the series and class of Issuer Notes to which the
relevant issuer currency swap relates but also with payments due to the holder
of any other series and class of Issuer Notes which rank equally with the series
and class of Issuer Notes to which the relevant issuer currency swap relates.
Furthermore, any termination payment or additional payment or additional amounts
required to be paid by the Issuer following termination of an issuer currency
swap will rank ahead of payments due to the holders of any series and class of
Issuer Notes which ranks below the series and class of Issuer Notes to which the
relevant issuer currency swap relates. Therefore, if the Issuer is obliged to
make a termination payment to the relevant issuer dollar currency swap provider,
the issuer Swiss franc currency swap provider and/or the issuer euro currency
swap provider, as the case may be, or to pay any other additional amount as a
result of the termination of the relevant issuer currency swap, this may affect
the funds which the Issuer has available to make payments on the Issuer Notes of
any class and any series.

Payments by Funding to third parties in relation to the other issuers may
affect payments due to the Issuer and accordingly its ability to make payments
on the Issuer Notes

Under the other
intercompany loan agreements, Funding is required to make payments to the other
issuers in respect of the other issuers obligations to make payments to their
respective own security trustee, note trustee, agent bank, paying agents,
liquidity facility provider, cash manager, corporate services provider and
account bank and to other third parties to whom the other issuers owe money.
These payments rank in priority to amounts due by Funding to the Issuer on the
issuer term advances.

Fundings obligations to
make the payments described above to the other issuers may affect Fundings
ability to make payments to the Issuer under the issuer intercompany loan. This
in turn may affect its ability to make payments on the Issuer Notes.

The
Issuer relies on third parties to perform services in relation to the Issuer
Notes, and noteholders may be adversely affected if they fail to perform their
obligations

The Issuer is a party
  to contracts with a number of other third parties that have agreed to perform
  services in relation to the Issuer Notes. For example, the issuer liquidity
  facility provider has agreed to provide it with the issuer liquidity facility
  and the issuer dollar currency swap providers, the issuer Swiss franc currency
  swap providers and the issuer euro currency swap provider have agreed to provide
  their swaps, the corporate services provider has agreed to provide corporate
  services and the paying agents and

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the agent bank
have agreed to provide payment and calculation services in connection with the
Issuer Notes. In the event that any of these parties were to fail to perform
their obligations under the respective agreements to which they are a party,
noteholders may be adversely affected.

The
Issuer may be unable to pay, in full or at all, interest due on the Issuer Notes
if there is an income or principal deficiency

If, on any interest
payment date, revenue receipts available to Funding (including the reserve
funds) are insufficient to enable Funding to pay interest on any of the other
term advances, issuer term advances and any new term advances and other expenses
of Funding ranking higher in seniority to interest due on such term advances,
then Funding may use principal receipts on the loans received by it in the
mortgages trust to make up the shortfall.

Funding will use
principal receipts that would have been applied to repay the term advances with
the lowest term advance rating to pay interest on those other term advances and
senior expenses described in the preceding paragraph where there is a shortfall
of monies to pay those amounts. At the closing date, the term advances with the
lowest term advance rating include the issuer term BBB advances. As a result of
using principal to repay interest and senior expenses in this manner, there will
be less principal available to repay the issuer term BBB advances.

Funding will be obliged
to keep a ledger that records any principal applied to pay interest and senior
expenses. When the amount recorded on the ledger is equal to the principal
amount outstanding of the term BBB advances, then Funding will use principal
receipts that would have been applied to repay the term advance with the next
lowest ranking term advance rating to pay interest on the term advances and
senior expenses where there is a shortfall of money to pay those amounts. At the
closing date, the term advances with the next lowest term advance rating include
the issuer term AA advances. When the amount recorded on the principal
deficiency ledger exceeds the principal amount outstanding on the term AA
advances, Funding will use principal receipts that would have been applied to
repay the term AAA advances to pay those amounts.

During the term of the
transaction, however, it is expected that any principal deficiencies will be
recouped from subsequent excess revenue receipts and amounts standing to the
credit of the first reserve fund. The revenue receipts and the first reserve
fund monies will be applied first to cover any principal deficiency in respect
of the term advances with the highest term advance rating (at the closing date,
these include the issuer term AAA advances), and then the term advances with the
next highest ranking term advance rating (at the closing date, these include the
issuer term AA advances), and so on down to the term advances with the lowest
term advance rating.

If there are
insufficient funds available because of such income or principal deficiencies,
then one or more of the following consequences may occur:

|· | the interest and
        other net income of Funding may not be sufficient, after making the payments
        to be made in priority, to pay, in full or at all, interest due on the
        issuer term BBB advances and the issuer term AA advances;                                                                                                                    
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                           
|· | there may
      be insufficient funds to repay any of the issuer term BBB advances and the
      issuer termAA advances prior to their final repayment dates unless the other net income
      of Funding issufficient, after making other prior ranking payments, to reduce
      any principal deficiency inrespect
      of the term BBB advances and term AA advances;
|  |                                                                                                                                                                                                                                                                                                                                                                           
|· | if the amount
      of principal deficiencies exceeds the principal amount outstanding of any
      of theterm
      advances (and the principal deficiencies cannot be covered by the other
      income of Funding),then the Issuer may not receive the full principal amount of any or all
      of the issuer term advances                                           

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|  | and, accordingly,
      noteholders may not receive the full face value of the class C Issuer Notes,
      the  class B Issuer Notes and the class A Issuer Notes, as the case
      may be; and/or
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                    
|· | ·the Issuer may be
      unable to pay, in full or at all, interest or principal due on Issuer Notes.                                                                                              
|  |                                                                                                                                                                                                    

The seller
  share of the trust property does not provide credit enhancement for the Issuer
  Notes

Any losses from loans
included in the trust property will be allocated proportionately between Funding
and the seller on each distribution date depending on their respective shares of
the trust property. The sellers share of the trust property therefore does not
provide credit enhancement for the Funding share of the trust property or the
Issuer Notes.

The
Issuer will only have recourse to the seller if there is a breach of warranty by
the seller, but otherwise the sellers assets will not be available to the
Issuer as a source of funds to make payments on the Issuer Notes

After an issuer
intercompany loan enforcement notice under the issuer intercompany loan is
given, the security trustee may sell the Funding share of the trust property.
There is no assurance that a buyer would be found or that such a sale would
realize enough money to repay amounts due and payable under the Intercompany
Loan Agreement.

The Issuer, Funding and
Trustees will not have any recourse to the seller of the loans, other than in
respect of a breach of warranty or other obligation under the mortgage sale
agreement. The Issuer, Trustees, Funding and the security trustee will not
undertake any investigations, searches or other actions on any loan or its
related security and the Issuer and each of them will rely instead on the
warranties given in the mortgage sale agreement by the seller.

If any of the warranties
made by the seller (i) in the case of each loan in the portfolio, was materially
untrue on the date such loan was assigned to Trustees or (ii) in the case of
each new loan, is materially untrue on the date such new loan is assigned to
Trustees, then the seller may be required by Trustees to remedy the breach
within twenty days of the seller becoming aware of the same or of receipt by it
of a notice from Trustees.

If the seller fails to
remedy the breach within twenty days, then Trustees may require the seller to
repurchase the loan or loans under the relevant mortgage account and their
related security together with any arrears of interest and accrued and unpaid
interest and expenses. There can be no assurance that the seller will have the
financial resources to repurchase the loan or loans under the relevant mortgage
account and their related security. However, if the seller does not repurchase
those loans and their related security when required, then the sellers share of
the trust property will be deemed to be reduced by an amount equal to the
principal amount outstanding of those loans together with any arrears of
interest and accrued and unpaid interest and expenses.

Other than as described
here, neither noteholders nor the Issuer will have any recourse to the assets of
the seller.

There
can be no assurance that a borrower will repay principal at the end of the term
on an interest only loan, which may adversely affect repayments on the Issuer
Notes

Each loan in the current
portfolio is repayable either on a principal repayment basis or an interest only
basis. Of the loans in the portfolio as at May 8, 2006, approximately 36 per
cent were interest-only loans. For interest-only loans, because the principal is
repaid in a lump sum at the maturity of the loan, the borrower is recommended to
have some repayment mechanism such as an investment plan in place to ensure that
funds will be available to repay the principal at the end of the term. However,
the seller does not take security over such repayment mechanisms. The borrower
is also recommended to take out a life

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insurance
policy in relation to the loan but, as with repayment mechanisms, the seller
does not take security over such life policies.

The ability of a
borrower to repay the principal on an interest-only loan at maturity depends on
such borrowers responsibility to ensure that sufficient funds are available
from an investment plan or another source, such as ISAs, pension policies,
personal equity plans or endowment policies, as well as the financial condition
of the borrower, tax laws and general economic conditions at the time. There can
be no assurance that the borrower will have the funds required to repay the
principal at the end of the term. If a borrower cannot repay the loan and a loss
occurs on the loan, then this may affect repayments of principal on the Issuer
Notes if that loss cannot be cured by amounts standing to the credit of the
first reserve fund or the application of excess Funding available revenue
receipts.

There
may be risks associated with the fact that Trustees has no legal title to the
mortgages which may adversely affect payments on the Issuer Notes

The sale by the seller
to Trustees of the mortgages has taken effect, and any such sale in the future
will take effect, in equity only. The sale by the seller to the mortgages
trustee of the Scottish mortgages has taken effect by declarations of trust by
the seller (and any sale of Scottish mortgages in the future will be given
effect by further declarations of trust) by which the beneficial interest in the
Scottish mortgages is transferred to the mortgages trustee. In each case, this
means that legal title to the loans in the trust property remains with the
seller, but Trustees has all the other rights and benefits relating to ownership
of each loan and its related security (which rights and benefits are subject to
the trust in favour of the beneficiaries). Trustees has the right to demand the
seller to give it legal title to the loans and the related security in certain
circumstances and until then Trustees will not apply to the Land Registry or the
Central Land Charges Registry to register or record its equitable interest in
the mortgages.

Because Trustees has not
  obtained legal title to the loans or their related security, there are risks,
  as follows:

| | · | firstly, if the
      seller wrongly sold a loan to another person which has already been assigned
      to Trustees, and that person acted in good faith and did not have notice
      of the interests of Trustees or
      the beneficiaries in the loan, then she or he might obtain good title to
      the loan, free from the interests of Trustees and the beneficiaries. If this occurred then
      Trustees would not have good title
      to the affected loan and its related security and it would not be entitled
      to payments by a borrower
      in respect of such a loan. This may affect the ability of the Issuer to
      repay the Issuer Notes;
      and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | secondly, the rights of Trustees and the beneficiaries may be subject
      to the rights of the borrowers against the seller, such as the rights of set-off which
      occur in relation to transactions or deposits made between certain borrowers
      and the seller and the rights of borrowers to redeem their mortgages by
      repaying the loan directly to the seller. If these rights were exercised,
      Trustees may receive less money than anticipated from the loans, which may
      affect the ability of the Issuer to repay the Issuer Notes.                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

However, if a borrower
exercises any set-off rights then an amount equal to the amount set off will
reduce the total amount of the seller share of the trust property only, and the
minimum seller share has been sized in an amount expected to cover this risk
(although there is no assurance that it will).

Once notice has been
given to borrowers of the transfer of the loans and their related security to
Trustees, independent set-off rights which a borrower has against the seller
will crystallize and further rights of independent set-off would cease to accrue
from that date and no new rights of independent set off could be asserted
following such notice. Set-off rights arising under transaction set-off (which
are set

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off claims
arising out of a transaction connected with the loan (for example, a savings
account maintained by a borrower pursuant to the terms of a flexible plus loan))
will not be affected by such notice.

Set-off
risks in relation to flexible loans, delayed cashbacks and reward cashbacks may
adversely affect the funds available to the Issuer to repay the Issuer Notes

As described under
There may be risks associated with the fact that Trustees has no legal title to
the mortgages which may adversely affect payments on the Issuer Notes, the
seller has made, and in the future may make, an equitable assignment of the
mortgages, or in the case of the Scottish mortgages transfer of the beneficial
interest in the Scottish mortgages to Trustees, with legal title being retained
by the seller. Therefore, the rights of Trustees may be subject to the direct
rights of the borrowers against the seller, including rights of set-off existing
prior to notification to the borrowers of the assignment of the mortgages. Such
set-off rights may occur if the seller fails to advance to a borrower a drawing
under a flexible loan when the borrower is entitled to draw additional amounts
under a flexible loan or if the seller fails to pay to a borrower any delayed
cashback or reward cashback which the seller had agreed to pay to that borrower
after completion of the relevant loan.

If the seller fails to
advance the drawing or pay the delayed cashback or reward cashback, then the
relevant borrower may set off any damages claim (or analagous right in Scotland)
arising from the sellers breach of contract against the sellers (and, as
assignee of the mortgages, Trusteess) claim for payment of principal and/or
interest under the loan as and when it becomes due. Such set-off claims will
constitute transaction set-off as described in the risk factor entitled
Independent set-off risks which a borrower has against the seller may adversely
affect the funds available to the Issuer to repay the Issuer Notes.

The amount of the claim
in respect of a drawing will, in many cases, be the cost to the borrower of
finding an alternative source of finance (although, in the case of flexible loan
drawing, a delayed cashback or reward cashback in respect of a Scottish loan, it
is possible, though regarded as unlikely, that the borrower's right of set-off
could extend to the whole amount of the additional drawing). The borrower may
obtain a loan elsewhere in which case the damages would be equal to any
difference in the borrowing costs together with any consequential losses, namely
the associated costs of obtaining alternative funds (for example, legal fees and
survey fees). If the borrower is unable to obtain an alternative loan, he or she
may have a claim in respect of other losses arising from the sellers breach of
contract where there are special circumstances communicated by the borrower to
the seller at the time the mortgage was taken out.

In respect of a delayed
cashback or reward cashback, the claim is likely to be in an amount equal to the
amount due under the delayed cashback or reward cashback together with interest
and expenses and consequential losses (if any).

A borrower may also
attempt to set off against his or her mortgage payments an amount greater than
the amount of his or her damages claim (or analagous claim in Scotland). In that
case, the servicer will be entitled to take enforcement proceedings against the
borrower although the period of non-payment by the borrower is likely to
continue until a judgment is obtained.

The exercise of set-off
rights by borrowers would reduce the incoming cashflow to Trustees during such
exercise. However, the amounts set off will be applied to reduce the seller
share of the trust property only. The minimum seller share has been sized in an
amount expected to cover this risk, although there is no assurance that it will.
If the minimum seller share is not sufficient in this respect then noteholders
may not receive all amounts due on the Issuer Notes.

Independent set-off risks that a borrower has against the seller may
adversely affect the funds available to the Issuer to repay the Issuer Notes

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Once notice has been
given to borrowers of the transfer of the loans and their related security to
the mortgages trustee, independent set-off rights which a borrower has against
the seller will crystallise and further rights of independent set-off would
cease to accrue from that date and no new rights of independent set-off could be
asserted following that notice. Set-off rights arising under transaction set-off
(which are set-off claims arising out of a transaction connected with the loan
(for example, a savings account maintained by a borrower pursuant to the terms
of a flexible plus loan)) will not be affected by that notice.

If the
servicer is removed, there is no guarantee that a substitute servicer would be
found, which could delay collection of payments on the loans and ultimately
could adversely affect payments on the Issuer Notes

The seller has been
appointed by Trustees and the beneficiaries as servicer to service the loans. If
the servicer breaches the terms of the servicing agreement, then Trustees and
the beneficiaries will be entitled to terminate the appointment of the servicer
and appoint a new servicer in its place.

There can be no
assurance that a substitute servicer would be found who would be willing and
able to service the loans on the terms of the servicing agreement. The ability
of a substitute servicer fully to perform the required services would depend,
among other things, on the information, software and records available at the
time of the appointment. Any delay or inability to appoint a substitute servicer
may affect payments on the loans and hence its ability to make payments when due
on the Issuer Notes.

The servicer has no
obligation itself to advance payments that borrowers fail to make in a timely
fashion.

Neither the security
trustee nor the note trustee is obliged in any circumstances to act as a
servicer or to monitor the performance by the servicer of its obligations.

Funding
may not receive the benefit of any claims made on the buildings insurance which
could adversely affect payments on the Issuer Notes

No assurance can be
given that Funding will always receive the benefit of any claims made under any
applicable insurance contracts. This could reduce the principal receipts
received by Funding according to the Funding share percentage and could
adversely affect its ability to redeem the Issuer Notes. Buildings insurance is
renewed annually.

Possible regulatory changes by the Office of Fair Trading, the Financial
Services Authority and any other regulatory authority may have an impact on the
seller, the Issuer, the servicer, and/or the loans and may adversely affect our
ability to make payments when due on the Issuer Notes

Mortgage Regulation

The U.K. Financial
Services Authority (the FSA) regulates persons who carry on regulated
activities in the United Kingdom under the Financial Services and Markets Act
2000 (the FSMA). This includes institutions which accept deposits by way of
business within the meaning of the FSMA and persons who carry on certain
mortgage business. There are five principal mortgage-related regulated
activities: (i) entering into; (ii) administering; (iii) arranging; (iv)
advising on regulated mortgage contracts; and (v) agreeing to do any of these
things (subject to certain exceptions) which are broadly loans entered into or
treated as entered into on or after 31 October 2004 that are secured by way of
first legal mortgage over U.K. residential property at least 40% of which is
used or intended to be used as, or in connection with, a dwelling by the
borrower or a related person.

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All authorised persons
(within the meaning of the FSMA) who are regulated by the FSA are subject to the
FSAs Handbook of rules and guidance which regulate a range of matters including
senior management arrangements, systems and controls, conduct of business and
training and competence.

The FSA is broadly
empowered to obtain information from and give directions to authorised persons
and also sets out standards that serve as guidelines for authorised persons
under its supervision. These authorised persons are subject to various reporting
obligations (including submitting regular reports to the FSA) to enable the FSA
to perform its supervisory role. The approach adopted by the FSA in supervising
banks is risk-based with the objectives of: (i) systematic assessment of whether
a bank meets the FSMA authorisation criteria; (ii) understanding the quality of
the management and the risks banks face; (iii) using appropriate supervisory
tools such as skilled persons reports on internal controls to identify risks
and (iv) allocating resources proportionate to risk by focusing on banks with a
high risk profile.

If mortgage lenders and
brokers are not authorised as required by the FSMA, a regulated mortgage
contract is unenforceable against the borrower except with the approval of a
court. Generally, each qualifying credit promotion (in broad terms an
advertisement or marketing activity) relating to a regulated mortgage contract
(or any other credit agreement secured by a mortgage on land, where the lender
carries on a regulated mortgage contract lending business) has to be issued or
approved by a person holding authorisation and permission from the FSA. If such
requirements as to qualifying credit promotions are not complied with, the
regulated mortgage contract (or other credit agreement) is unenforceable against
the borrower except with the approval of a court. In addition, a court order is
in any event necessary to enforce a mortgage securing a regulated mortgage
contract that would (if it were not a regulated mortgage contract) be, or be
treated as, regulated by the Consumer Credit Act 1974 (the CCA).

Under the terms of the
regulatory regime under the UK Financial Services and Markets Act 2000, the
Issuer and mortgages trustee will not carry on any regulated activity in
relation to regulated mortgage contracts that are administered pursuant to an
administration agreement by an entity having the required authorisation and
permission. If such administration agreement terminates, however, the Issuer and
mortgages trustee will have a period of not more than one month in which to
arrange for mortgage administration to be carried out by a replacement
administrator having the required authorisation and permission.

In addition, from
31stOctober 2004
no variations have been or will be made to the loans and no further advances or
product switches have been or will be made under the loans where it would result
in Funding and/or the mortgages trustee arranging or advising in respect of
administering or entering into a regulated mortgage contract (or agreeing to do
any of these things) if the Issuer, Funding and/or the mortgages trustee would
be required to be authorised under FSMA to do so.

All authorised persons
(within the meaning of the FSMA) who are regulated by the FSA are subject to the
FSAs Handbook of rules and guidance which regulate a range of matters including
senior management arrangements, systems and controls, conduct of business and
training and competence.The
FSA Handbook
of Rules means the rules
promulgated by the FSA under FSMA and set out in the FSAs Handbook of Rules and
Guidance, as updated, amended or replaced from time to time.

A borrower who is a
private person is entitled to claim damages for loss suffered as a result of any
contravention by an authorised person of an FSA rule, and may set off the amount
of the claim against the amount owing by the borrower under the loan or any
other loan that the borrower has taken (or exercise analogous rights in
Scotland). Any such set-off may adversely affect our ability to make payments in
full on the Issuer Notes when due.

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Consumer Credit Regulation and the UK Consumer Credit Act 2006

In the United Kingdom,
the Office of Fair Trading (the OFT) is responsible for the issue of licences
under, and the superintendence of the working and the enforcement of, the CCA,
related consumer credit regulations and other consumer protection legislation.
The OFT may review business and operations, provide guidelines to follow and
take actions when necessary with regard to the consumer credit and mortgage
markets in the United Kingdom.

Currently, a credit
agreement is regulated by the CCA where: (i) the borrower is or includes an
individual; (ii) the amount of credit as defined in the CCA does not exceed
the financial limit, which is £25,000 for credit agreements made on or after 1
May 1998, or lower amounts for credit agreements made before that date; and
(iii) the credit agreement is not an exempt agreement as defined in the CCA (for
example it is intended that a regulated mortgage contract under the FSMA is an
exempt agreement under the CCA.

The CCA does not apply
to loans and mortgages which are regulated mortgage contracts, as described
above (although in certain circumstances it may be necessary to obtain a court
order under section 126 CCA to enforce a regulated mortgage contract). The CCA
does apply to loans and mortgages which are not regulated mortgage contracts,
but which fall within the criteria for regulation by the CCA as described above.
Loans and mortgages which will not be regulated mortgage contracts and which
therefore may be regulated by the CCA if they fall within such criteria include
loans secured by second or subsequent charges and any buy-to-let mortgage which
is secured on land which is not used or intended to be used as to at least 40%
or in connection with a dwelling by the borrower or a related person.

Any credit agreement
that is wholly or partly regulated by the CCA or is to be treated as such has to
comply with the requirements under the CCA as to licensing of lenders and
brokers, documentation and procedures of credit agreements, and (in so far as
will be applicable) pre-contract disclosure. If it does not comply with those
requirements, then to the extent that the credit agreement is regulated by the
CCA or to be treated as such, it is unenforceable against the borrower: (a)
without an order of the OFT, if requirements as to licensing of lenders and
brokers are not met; (b) totally, if the form to be signed by the borrower is
not signed by the borrower personally or omits or mis-states a prescribed
term; or (c) without a court order in other cases and, in exercising its
discretion whether to make the order, the court would take into account any
prejudice suffered by the borrower and any culpability by the lender.

Any credit agreement
intended to be a regulated mortgage contract under the FSMA or unregulated under
the FSMA might instead be wholly or partly regulated by the CCA or to be treated
as such because of technical rules on:

|(a) | determining whether any credit under the CCA arises, or whether the
      financial limit of the    
|--- | ----------------------------------------------------------------------------------------------------
|    | CCA is
      exceeded;                                                                              
|    |                                                                                                     
|(b) | determining whether the credit agreement is an exempt agreement
      under the CCA (for            
|    | example,
      certain types of credit agreement to finance the purchase of, or
      alteration to,
|    | homes or
      business premises, or a regulated mortgage contract under the FSMA);
      or        
|    |                                                                                                     
|(c) | changes
      to credit agreements.                                                                 

A court order under
Section 126 of the CCA is necessary to enforce a mortgage securing a loan,
further advance or credit agreement to the extent that it is regulated by the
CCA or to be treated as such. In dealing with such application, the court has
the power, if it appears to do so, to amend a loan, further

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advance or
credit agreement or to impose conditions upon its performance or to make a time
order (for example, giving extra time for arrears to be cleared).

The Consumer Credit Act
2006 (the CCA 2006) received the Royal Assent on 30thMarch
2006. Once implemented the new Act will update and augment the CCA.

It is currently expected
that from April 2007 the extortionate credit regime will be replaced by the
unfair relationship test. In applying the new unfair relationship test the
courts will be able to consider a wider range of circumstances surrounding the
transaction including the creditors conduct before and after making the
agreement. There is no statutory definition of the word unfair as the
intention is for the test to be flexible and subject to judicial discretion.
However the word unfair is not an unfamiliar term in UK law due to the Unfair
Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations
1999 (SI 1999/2083). The courts may look to the above legislation for guidance.
The FSA Principles are also relevant and apply to the way contract terms are
used in practice and not just the way they are drafted. The test has
retrospective application after a transitional period. Once the debtor alleges
that an unfair relationship exists, it is up to the creditor to prove the
contrary, altering the burden of proof.

An alternative dispute
resolution (ADR) scheme for consumer credit matters is to be run by the
Financial Ombudsman Service (FOS). It is currently expected that from April 2007
the scheme will be mandatory for all businesses licensed under the CCA. The CCA
2006 also introduces an Independent Consumer Appeals Tribunal.

It is currently expected
that from April 2008 the statutory upper financial limit of £25,000 for CCA
regulation will be removed.

The OFT are to be given
far broader powers under the CCA 2006 for instance they can apply intermediate
sanctions, have far greater powers of investigation and can issue indefinite
standard licences. The CCA 2006 obliges creditors to comply with more stringent
information requirements. It is currently expected that from 2008 lenders will
be obliged to give customers clearer and more regular information on the state
of their credit accounts for example by running account and fixed sum
statements; OFT information sheets and arrears notices.

The seller has
interpreted certain technical rules under the CCA in a way common with many
other lenders in the mortgage market. If such interpretation were held to be
incorrect by a court or the Ombudsman, then a credit agreement, to the extent
that it is regulated by the CCA or treated as such, would be unenforceable as
described above. If such interpretation were challenged by a significant number
of borrowers, then this could lead to significant disruption and shortfall in
the income of the mortgages trustee. Court decisions have been made on technical
rules under the CCA against certain mortgage lenders, but such decisions are
very few and are generally county court decisions which are not binding on other
courts.

The seller has given or,
as applicable, will give warranties to the mortgages trustee in the mortgage
sale agreement that, among other things, each loan and its related security is
enforceable (subject to certain exceptions). If a loan or its related security
does not comply with these warranties, and if the default cannot be or is not
cured within 20 days, then the seller will be required to repurchase the loans
under the relevant mortgage account and their related security from the
mortgages trustee.

No assurance can be
given that additional regulations from the Office of Fair Trading, the Financial
Services Authority or any other regulatory authority will not arise with regard
to the mortgage market in the United Kingdom generally, the sellers particular
sector in that market or specifically in relation to the seller. Any such action
or developments may have a material adverse effect on the loans,

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the seller, the
Issuer and/or the servicer and their respective businesses and operations. This
may adversely affect our ability to make payments in full on the Issuer Notes
when due.

Distance Marketing

In the United Kingdom,
the Financial (Distance Marketing) Regulations 2004 apply to,inter
alia,
credit agreements entered into on or after 31 October 2004 by means of distance
communication (i.e. without any substantive simultaneous physical presence of
the originator and the borrower). A regulated mortgage contract under the FSMA,
if originated by a UK lender from an establishment in the UK, will not be
cancellable under these regulations. Any other credit agreement will be
cancellable under these regulations, if the borrower does not receive prescribed
information at the prescribed time, or in any event for certain unsecured
lending. The borrower may send notice of cancellation under these regulations at
any time before the end of the fourteenth day after the day on which the
cancellable agreement is made or, if later, the borrower receives the last of
prescribed information.

If the borrower cancels
the credit agreement under these regulations, then: (a) the borrower is liable
to repay the principal and any other sums paid by the originator to the borrower
under or in relation to the cancelled agreement, within 30 days beginning with
the day of the borrower sending notice of cancellation or, if later, the
originator receiving notice of cancellation; (b) the borrower is liable to pay
interest, or any early repayment charge or other charge for credit under the
cancelled agreement, only if the borrower received certain prescribed
information at the prescribed time and if other conditions are met; and (c) any
security is to be treated as never having had effect for the cancelled
agreement.

Proposed EU Consumer Credit Directive

In September 2002, the
European Commission published a proposal for a directive of the European
Parliament and of the Council on the harmonisation of the laws, regulations and
administrative provisions of the member states concerning credit for consumers
and surety agreements entered into by consumers. Under the original proposed
draft, the directive required specific requirements to be met in respect of
certain mortgage loan products (including new credit agreements for further
drawings under certain flexible mortgages and for further advances and
amortisation tables for repayment mortgages). Mortgage loans not complying with
these requirements were potentially unenforceable. Significantly, in its
original form, the proposal provided that it does not apply retrospectively
(subject to certain exceptions including in respect of new drawings made in
respect of existing agreements) and does not apply to residential mortgage loans
except those which include an equity release component.

There has been
significant opposition from the European Parliament to the original form of the
proposed directive. On 13 February 2004, the Committee of Legal Affairs and the
Internal Market published the European Parliaments amendments to the proposed
draft. These amendments included excluding any credit agreement secured by a
mortgage on land. On 20 April 2004 the European parliament voted on its first
reading on the proposed directive. The European Commission published on 28
October 2004 a revised proposal, which comprised a list of intended revisions to
the draft directive based on the amendments that the European Commission felt
either able or unable to accept rather than a full redraft. In this amended form
die proposed directive will apply to any loan secured by a mortgage over land if
the loan includes an equity release element and is not over €100,000, but it is
unclear whether it will apply to further drawings and further advances made in
relation to agreements existing before national implementing legislation conies
into effect.

The DTI published in
February 2005 a consultation paper on the European Commissions amended form of
the proposed Directive, and in June 2005 a summary of responses to this
consultation. In July 2005, the European Commission published a Green Paper on
mortgage credit, in which it

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announced its
intention that loans secured by a land mortgage will be excluded from the
proposed Directive but will be covered by any initiatives resulting from the
Green Paper process. In October 2005, the European Commission published a
further amended form of the proposed Directive, which provides that (subject to
certain exceptions) loans not exceeding €50,000 will be regulated, but that
loans secured by a land mortgage will be excluded from the proposed Directive.
The proposed Directive, which may be further substantially amended before it is
brought into effect, is unlikely to come into force before mid 2006, and member
states will then have a further two years in which to bring national
implementing legislation into force. In March 2006 the DTI released a further
consultation paper, the deadline for responses was 10 May 2006.

Until the final text of
the Directive and of any initiatives resulting from the Green Paper process are
decided and the details of the United Kingdom implementing legislation are
published, it is not certain what effect the adoption and implementation of the
Directive or initiatives would have on our ability to make payments in full on
the Issuer Notes when due. No assurance can be given that additional regulations
from the OFT, the FSA or any other regulatory authority will not arise with
regard to the mortgage market in the United Kingdom generally, the sellers
particular sector in that market or specifically in relation to the seller. Any
such action or developments or compliance costs may have a material adverse
effect on the loans, the seller, the Issuer and/or the servicer and their
respective business and operations. This may adversely affect our ability to
make payments in full on the Issuer Notes when due.

Regulations in the United Kingdom could lead to some terms of the loans
being unenforceable, which may adversely affect payments on the Issuer Notes

In the United Kingdom,
the Unfair Terms in Consumer Contracts Regulations 1999, and (in so far as
applicable) the Unfair Terms in Consumer Contracts Regulations 1994 (together,
the regulations) apply to agreements entered into on or after July 1, 1995 and
affect all of the loans. The regulations provide that:

| | · | a borrower may challenge
        a term in an agreement on the basis that it is an unfair term
        within the regulations and therefore not binding on the borrower; and                                                   
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                  
| | · | the Office
      of Fair Trading, the Financial Services Authority and any other qualifying
      body (as defined in the regulations) may seek to prevent a business
      from using or recommending the use of unfair terms.

The regulations will not
generally affect individually negotiated or core terms which set out the main
subject-matter of the contract, such as the borrowers obligation to repay the
principal. However, they may affect terms that are not considered to be core
terms, such as the right of the lender to vary the interest rate.

For example, if a term
permitting a lender to vary the interest rate (as the seller is permitted to do)
is found to be unfair, the borrower will not be liable to pay the increased rate
or, to the extent that she or he has paid it, will be able, as against the
lender, or any assignee such as Trustees, to claim repayment of the extra
interest amounts paid or to set-off the amount of the claim against the amount
owing by the borrower under the loan or under any other loan that the borrower
has taken. Any such non-recovery, claim or set-off ultimately may adversely
affect our ability to make payments on the Issuer Notes.

The FSA has agreed with
the OFT to take responsibility for the enforcement of the UTCCR in mortgage
agreements. In May 2005, the FSA issued a statement of good practice on fairness
of terms in consumer contracts, which is relevant to firms authorised and
regulated by the FSA in relation to products

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and services
within the FSAs regulatory scope. This statement considers, among other things,
borrowers who are locked in, for example, by an early repayment charge that is
considered to be a penalty. This statement provides that, for locked-in
borrowers, a firm may consider drafting the contract to permit a change in the
contract to be made only where any lock-in clause is not exercised.

In August 2002, the Law
Commission for England and Wales and the Scottish Law Commission issued a joint
consultation LCCP No. 166/SLCDP 119 on proposals to rationalise the Unfair
Contract Terms Act 1977 and the regulations into a single piece of legislation
and a final report (incorporating a proposed Bill on unfair terms), which was
expected early in 2004 but at the date of this annual report, has not yet been
published. The Law Commissions have a duty under section 3 of the Law
Commissions Act 1965 to keep the law under review for a number of purposes,
including its simplification. The proposals are primarily to simplify the
legislation on unfair terms. It is not proposed that there should be any
significant increase in the extent of controls over terms in consumer contracts.
Some changes are proposed, however, such as that the legislation should not
affect core terms in so far as they are not substantially different from what
the borrower should reasonably expect and are transparent. However, it is not
obligatory for any of the Law Commissions reports to be considered for
enactment as legislation by the UK government. It is therefore too early to tell
how the proposals, if enacted, would affect the loans.

Decisions of the Ombudsman could lead to terms of the loans being
considered unfair and such terms being varied, which may adversely affect
payments on the Issuer Notes

Under the UK Financial
Services and Markets Act 2000, the Financial Ombudsman Service is empowered to
make decisions on, among other things, complaints relating to the terms in
agreements for the provision of financial services, including loans, on the
basis of what, in the Ombudsmans opinion, would be fair and reasonable in all
circumstances of the case, taking into account, among other things, law and
guidance. Such complaints are generally decided on a case by case basis by the
Financial Ombudsman Service, with reference to the particular facts of any
individual case. Each case is first adjudicated by an adjudicator. Either party
to the case may appeal against the adjudication. In the event of an appeal, the
case proceeds to a final decision by the Ombudsman.

No Financial Ombudsman
Service decision against the seller has had a material adverse effect on the
Issuers ability to make payments on the Issuer Notes. However, given the
Financial Ombudsman Services wide jurisdiction in respect of fairness in the
provision of financial services, it cannot be said with certainty what effect,
if any, any future decision of the Financial Ombudsman Service may have on the
Issuers ability to make payments on the Issuer Notes.

Tax
payable by Funding or the Issuer may adversely affect the Issuers ability to
make payments on the Issuer Notes

As explained in Item
10.E.  Taxation  United Kingdom Taxation, Funding and the Issuer will
generally be subject to UK corporation tax, currently at a rate of 30 per cent.,
on the profit reflected in their respective profit and loss accounts as
increased by the amount of any non-deductible expenses or losses. If the tax
payable by Funding or the Issuer is greater than expected because, for example,
non deductible expenses or losses are greater than expected, the funds available
to make payments on the Issuer Notes will be reduced and this may adversely
affect the Issuers ability to make payments on the Issuer Notes.

The UK corporation tax
position of the Issuer and Funding, however, also depends to a significant
extent on the accounting treatment applicable to it. From 1st January, 2005, the
accounts of the Issuer are required to comply with International Financial
Reporting Standards (IFRS) or with new UK Financial Reporting Standards
reflecting IFRS (new UK GAAP). Funding has chosen to comply with

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IFRS. There is
a concern that companies such as the Issuer and Funding might, under either IFRS
or new UK GAAP, suffer timing differences that could result in profits or losses
for accounting purposes, and accordingly for tax purposes (unless tax
legislation provides otherwise), which bear little or no relationship to the
companys cash position. However, the Finance Act 2005 (which received royal
assent on 7th April, 2005) requires securitisation companies to prepare tax
computations for accounting periods beginning on or after 1st January, 2005 and
ending before 1st January, 2007 on the basis of UK GAAP as applicable up to 31st
December, 2004, notwithstanding the requirement to prepare statutory accounts
under IFRS or new UK GAAP. The Finance Bill 2006 provides that this temporary
tax basis available to securitisation companies is to be extended for a
further year (i.e. to periods of account ending on or before 31st December,
2007). On the basis of the definition of securitisation company as currently
drafted for these purposes, the Issuer and Funding will each qualify as such a
company.

The stated policy of
H.M. Revenue & Customs is that the tax neutrality of securitisation special
purpose companies in general should not be disrupted as a result of the
transition to IFRS or new UK GAAP and that they are working with participants in
the securitisation industry to identify appropriate means of preventing any such
disruption through a permanent regime. The Finance Act 2005 enables regulations
to be made to establish such a regime. It is not clear what the provisions of
such a regime will entail, although current indications from H.M. Revenue &
Customs are that a securitisation company will have to satisfy various
conditions in order to be able to benefit from the regime. If, however (for
whatever reason), measures are not introduced to deal with the corporate tax
position of such companies in respect of accounting periods ending on or after
1st January, 2008, then profits or losses could arise in the Issuer and/or
Funding as a result of the application of IFRS or new UK GAAP which could have
tax effects not contemplated in the cashflows for the transaction and as such
adversely affect the Issuer and/or Funding and consequently payments on the
Issuer Notes.

European Directive 2003/48/EC on the Taxation of Savings Income may
adversely affect noteholders interests

On 1 July 2005 a
European Union Directive (2003/48/EC) regarding the taxation of savings income
came into force. Under the Directive, member states are required to provide to
the tax authorities of other member states details of payments of interest and
other similar income paid by a person within a member state's jurisdiction to an
individual in another member state, except that Austria, Belgium and Luxembourg
will instead impose a withholding system for a transitional period, unless
during such period they elect otherwise (the ending of such transitional period
being dependent upon the conclusion of certain other agreements relating to
information exchange with certain other countries).

Payments of interest on
the Issuer Notes which are made or collected through a member state or any other
relevant country may be subject to withholding tax which would prevent holders
of the Issuer Notes from receiving interest on their Issuer Notes in full.

Noteholders interests may be adversely affected if the United Kingdom
joins the European Monetary Union

It is possible that
prior to the maturity of the Notes, the United Kingdom may become a
participating member state in the European economic and monetary union and the
euro may become the lawful currency of the United Kingdom. In that event (a) all
amounts payable in respect of the Issuer Notes denominated in pounds sterling
may become payable in euro, (b) applicable provisions of law may require or
allow us to redenominate such Issuer Notes into euro and take additional
measures in respect of such Issuer Notes and (c) the introduction of the euro as
the lawful currency of the United Kingdom may result in the disappearance of
published or displayed rates for deposits in sterling used to determine the
rates of interest on such Issuer Notes or changes in the way those rates are
calculated, quoted and published or displayed. The introduction of the euro
could also be accompanied by a volatile interest rate

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environment
which could adversely affect investors. It cannot be said with certainty what
effect, if any, adoption of the euro by the United Kingdom will have on
investors on the Issuer Notes.

Changes
of law may adversely affect noteholders interests

The structure of the
issue of the Issuer Notes and the ratings which are to be assigned to them are
based on English law and Scottish law in relation to Scottish loans in effect as
at the date of this annual report. No assurance can be given as to the impact of
any possible change to English or Scottish law or administrative practice in the
United Kingdom after the date of this annual report.

Insolvency Act 2000

Significant changes to
the insolvency regime in England and Wales and Scotland have recently been
enacted, including the Insolvency Act 2000. The Insolvency Act 2000 allows
certain small companies to seek protection from their creditors for a period
of 28 days, for the purposes of putting together a company voluntary
arrangement, with the option for creditors to extend the moratorium for a
further two months. A small company is defined as one which satisfies, in any
financial year, two or more of the following criteria: (i) its turnover is not
more than £5.6 million, (ii) its balance sheet total is not more than £2.8
million and (iii) the number of employees is not more than 50. Whether or not a
company is a small company may change from period to period and consequently
no assurance can be given that the Issuer, Trustees or Funding will not, at any
given time, be determined to be a small company. The Secretary of State for
Trade and Industry may by regulation modify the eligibility requirements for
small companies and has the power to make different provisions for different
cases. No assurance can be given that any such modification or different
provisions will not be detrimental to the interests of noteholders.

Secondary legislation
has now been enacted which excludes certain special purpose companies in
relation to capital markets transactions from the optional moratorium
provisions. Such exceptions include (amongst other matters): (i) a company which
is a party to an agreement which is or forms part of a capital market
arrangement (as defined in the secondary legislation) under which (a) a party
has incurred or when the agreement was entered into was expected to incur a debt
of at least £10 million under the arrangement and (b) the arrangement involves
the issue of a capital market investment (also defined, but generally, a rated,
listed or traded bond) and (ii) a company which has incurred a liability
(including a present, future or contingent liability) of at least £10 million.
While the Issuer, Trustees and Funding should fall within the exceptions, there
is no guidance as to how the legislation will be interpreted by a court and the
Secretary of State for Trade and Industry may by regulation modify the
exception. No assurance may be given that any modification of the eligibility
requirements for small companies and/or the exceptions will not be detrimental
to the interests of noteholders.

If the Issuer and/or
Trustees and/or Funding is determined to be a small company and determined not
to fall within one of the exceptions (by reason of modification of the
exceptions or otherwise), then the enforcement of the Issuer security by the
security trustee may, for a period, be prohibited by the imposition of a
moratorium.

Enterprise Act 2002

On September 15, 2003,
the corporate insolvency provisions of the Enterprise Act 2002 (the Enterprise
Act) came into force, amending certain provisions of the Insolvency Act 1986 as
amended (the Insolvency Act). These provisions introduced significant reforms
to corporate insolvency law. In particular the reforms restrict the right of the
holder of a floating charge created after 15th September, 2003 to appoint an
administrative receiver (unless an exception applies) and instead gives primacy
to collective insolvency procedures (in particular, administration).

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The holder of a floating
charge created before September 15, 2003 over the whole or substantially the
whole of the assets of a company (such as the security trustee under the Funding
deed of charge) retains the ability to block the appointment of an administrator
by appointing an administrative receiver, who has a duty to primarily act in the
interests of the floating charge holder.

The Insolvency Act
contains provisions which continue to allow for the appointment of an
administrative receiver in relation to certain transactions in the capital
markets. The right to appoint an administrative receiver is retained for certain
types of security (such as the Issuer security) that form part of a capital
markets arrangement (as defined in the Insolvency Act) that involves (i)
indebtedness of at least £50,000,000 (or, when the relevant security document
was entered into (being in respect of the transactions described in this annual
report, the Issuer deed of charge), a party to the relevant transaction (such as
the Issuer) was expected to incur a debt of at least £50,000,000) and (ii) the
issue of a capital markets investment (also defined but generally a rated,
listed or traded bond). The Secretary of State for Trade and Industry may, by
secondary legislation, modify this exception and/or provide that the exception
shall cease to have effect. No assurance can be given that any such modification
or provision in respect of the capital market exception, or its ceasing to be
applicable to the transactions described in this document will not adversely
affect payments on the Issuer Notes. While the Issuer security should fall
within the relevant exception, as the provisions of the Enterprise Act have
never been considered judicially, no assurance can be given as to whether the
Enterprise Act could have a detrimental effect on the transaction described in
this annual report or on the interests of noteholders.

The Insolvency Act also
contains a new out-of-court route into administration for a qualifying floating
charge holder, the directors or the company itself. The relevant provisions
provide for a notice period during which the holder of the floating charge can
either agree to the administrator proposed by the directors of the company or
appoint an alternative administrator, although the moratorium will take effect
immediately after notice is given. If the qualifying floating charge holder does
not respond to the directors' notice of intention to appoint, the directors', or
as the case may be, the company's appointee will automatically take office after
the notice period has elapsed. Where the holder of a qualifying floating charge
within the context of a capital market transaction retains the power to appoint
an administrative receiver, such holder may prevent the appointment of an
administrator (either by the new out-of-court route or by the court based
procedure), by appointing an administrative receiver prior to the appointment of
the administrator being completed.

The new provisions of
the Insolvency Act give primary emphasis to the rescue of the company as a going
concern. The purpose of realising property to make a distribution to one or more
secured creditors is subordinated to the primary purposes of rescuing the
company as a going concern or achieving a better result for the creditors as a
whole than would be likely if the company were wound up. No assurance can be
given that the primary purposes of the new provisions will not conflict with the
interests of noteholders were the Issuer ever subject to administration.

In addition to the
introduction of a prohibition on the appointment of an administrative receiver
as set out above, section 176A of the Insolvency Act provides that in relation
to floating charges created after September 15, 2003 any receiver (including an
administrative receiver), liquidator or administrator of a company is required
to make a prescribed part of the company's net property available for the
satisfaction of unsecured debts in priority to the claims of the floating charge
holder. The company's net property is defined as the amount of the chargor's
property which would be available for satisfaction of debts due to the holder(s)
of any debentures secured by a floating charge and so refers to any floating
charge realisations less any amounts payable to the preferential creditors or in
respect of the fees or expenses of administration. The prescribed part is
defined in The Insolvency Act 1986 (Prescribed Part) Order 2003 (SI 2003/2097)
to be an amount equal to 50 per cent. of the first £10,000 of floating charge
realisations plus 20 per cent. of the floating charge realisations thereafter,
provided that such amount may not exceed £600,000.

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This obligation does not
apply if the net property is less than a prescribed minimum and the relevant
officeholder is of the view that the cost of making a distribution to unsecured
creditors would be disproportionate to the benefits. The relevant officeholder
may also apply to court for an order that the provisions of section 176A of the
Insolvency Act should not apply on the basis that the cost of making a
distribution would be disproportionate to the benefits.

Floating charge
realisations upon the enforcement of the Issuer security may be reduced by the
operation of the ring fencing provisions described above.

Capital Adequacy

An authorised person
with permission from the FSA to accept deposits by way of business (in other
words, a bank) is subject tointer aliathe
part of the Handbook known as the "Interim Prudential Sourcebook for Banks". The
Interim Prudential Sourcebook for Banks will be replaced in stages between 2004
and (probably) 2007 as parts of the Integrated Prudential Sourcebook come into
force; the Integrated Prudential Sourcebook in relation to mortgage firms (other
than banks and building societies) is already in force.

The development of the
Integrated Prudential Sourcebook is to take into account the implementation of a
range of European directives and international agreements, in particular the New
Basel Capital Accord (Basel II) and the related European Capital Requirements
Directive (which implements, and indeed goes further than, the New Basel Capital
Accord).

Implementation of the New Basel Capital Accord and the risk-weighted
asset framework may result in changes to the risk-weighting of the Issuer Notes

On November 14, 2005,
the Basel Committee on Banking Supervision published an updated version of the
text of new capital adequacy standards for international banks, under the title
Basel II: International Convergence of Capital Measurement and Capital
Standards: a Revised Framework. This new framework (the Basel II Framework)
substantially revises and expands the existing Basel I Capital Accord first
issued in 1988, includes more sophisticated approaches to applying capital
requirements based on risk, addresses more types of risk including operational
risk, and places enhanced emphasis on market discipline and banks internal
systems and controls. The Basel II framework is not self-implementing, but
rather forms the basis for national rule-making and approval processes in
participating countries. The Basel Committee has released numerous discussion
papers, impact studies and guidance for banking organisations in their
preparations for implementing the revised capital standards. The Committee has
also formed an Accord Implementation Group of bank supervisors to share
information and to promote consistency as participating countries move forward
with implementation of Basel II.

Within the European
Union and the European Economic Area, the Basel II Framework will be implemented
through the EU Capital Requirements Directive, which makes some modifications to
the Framework. It is currently intended that the various approaches under the
Basel II Framework and the EU Capital Requirements Directive will be implemented
in stages, some from year-end 2006, the most advanced at year-end 2007.

In the United States,
the federal banking regulators have proposed to require about the 20 largest US
banking organisations to use the most advanced approaches of Basel II; other US
banks with sophisticated systems may voluntarily elect to adopt Basel II
advanced approaches subject to regulatory approval. Most US banks initially
would not be subject to Basel II and would continue to follow existing US
risk-based capital rules with certain modifications to be determined (a proposal
known as Basel I-A.). The US is not adopting Basel IIs simpler approaches, as
the existing US framework based on Basel I is not equivalent to Basel II.
Implementation of Basel II in the United States is also targeted to begin on
January 1, 2009, one year later than in Europe. This one year gap and other
differences in the

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application or
interpretation between the US, the EU and other jurisdictions in which the Abbey
group has operations could represent challenges for the bank in implementing
Basel II.

As and when implemented,
the Basel II Framework could affect the risk-based capital treatment of the
Financing notes for investors who are subject to bank capital adequacy
requirements that follow the Framework. Consequently, investors should consult
their own advisers as to the consequences to and effect on them of the proposed
implementation of the Basel II Framework. Proposals and guidelines for
implementing Basel II in participating jurisdictions are still in development,
and no predictions can be made as to the precise effects of potential changes on
the Abbey group, the Financing notes or any investor.

Fixed
charges subsequently re-characterised as floating charges may adversely affect
payments on the Issuer Notes

Fixed charges over bank
accounts may take effect under English law as floating charges. Under the terms
of the Issuer deed of charge and the Funding deed of charge respectively, the
Issuer and Funding will purport to grant, among other things, fixed charges in
favour of the security trustee over, in the case of the Issuer, the Issuer's
interest in the Issuer transaction account and, in the case of Funding,
Funding's interest in the Funding transaction account.

The law in England and
Wales relating to the re-characterisation of fixed charges is unsettled. The
fixed charges purported to be granted by the Issuer and Funding (other than by
way of assignment in security) will take effect under English law only as
floating charges if it is determined that the security trustee does not exert
sufficient control over the relevant account, or the proceeds thereof, for the
security to be said to "fix" over those assets. As the Issuer and Funding are
signatories to the accounts, there is a risk that a court will consider that the
security trustee does not exert a sufficient degree of control to ensure that
the charges over those accounts are held to be fixed charges. If the charges
take effect as floating charges instead of fixed charges, then certain matters,
which are given priority over floating charges by law, will be given priority
over the claims of the floating chargeholder.

In addition, if assets
in respect of which the Issuer or Funding has granted a fixed charge are paid
into a bank account the charge over which is subsequently re-characterised as a
floating charge, the original fixed charge in relation to the assets may also be
re-characterised as a floating charge.

Item
  4. Information on the Company

| | A. History
      and Development of the Company
| | -----------------------------------------------
| |                                                
| | Not applicable.                                
| |                                                
| | B. Business
      Overview                     
| |                                                
| | Not applicable.                                
| |                                                
| | C. Organizational
      Structure              
| |                                                
| | Not applicable.                                

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| | D.
      Property, Plant and Equipment
| | --------------------------------------

The property of the Issuer consists solely of its right to receive payments of interest and principal from Funding on the various Term Advances made under
the Intercompany Loan Agreement. The property of Funding consists of its interest in the trust property held by Trustees together with amounts available under two reserve funds and its right to receive certain payments of principal and interest from
the trust property controlled by Trustees. The trust property includes the loans in the portfolio at the closing date or which have subsequently been assigned to Trustees thereafter (including any new drawings under flexible loans) and their related
security and any income generated by the loans or their related security. The composition of the trust property will fluctuate as drawings under flexible loans and new loans are added and as the loans that were previously part of the trust property
are repaid, mature, default or are repurchased by the seller. The trust property also includes any money in the mortgages trustee guaranteed investment contract (or GIC) account and in any other bank account or bank accounts held by Trustees (as
agreed by Trustees, Funding, the seller and the security trustee) from time to time, called the alternative accounts. The mortgages trustee GIC account is the bank account in which Trustees holds any cash that is part of the trust property until it
is distributed to the beneficiaries. The alternative accounts are accounts into which payments by some mortgage borrowers are paid initially.

The
  officers certificate of compliance of the Issuer, executed by two directors
  of the Issuer is filed as Exhibit 10.18 to this Annual Report on Form 20-F.
  The certificate of compliance contains a statement that during the period from
  July 5, 2001 to April 30, 2006, to the best of the knowledge and belief of the
  signatories, the Issuer has complied with all its obligations contained in the
  Issuer Trust Deed and each of the Transaction Documents (as defined in the Issuer
  Trust Deed) to which it is a party. It also contains a statement that as at
  April 30, 2006, there did not exist and had not existed since July 5, 2001,
  any Note Event of Default (as defined in the Issuer Trust Deed).

Item
  5. Operating and Financial Review and Prospects

| | A.
      Operating Results                                   
| | -------------------------------------------------------------
| |                                                              
| | Not applicable.                                              
| |                                                              
| | B.
      Liquidity and Capital Resources                     
| |                                                              
| | Not applicable.                                              
| |                                                              
| | C.
      Research and Development, Patents and Licenses, etc.
| |                                                              
| | Not applicable.                                              
| |                                                              
| | D.
      Trend Information                                   
| |                                                              
| | Not applicable.                                              
| |                                                              
| | E.
      Off-Balance Sheet Arrangements                      
| |                                                              
| | Not applicable.                                              
| |                                                              
| | F.
      Tabular Disclosure of Contractual Obligations       
| |                                                              
| | Not applicable.                                              

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Item
  6. Directors, Senior Management and Employees

A.
  Directors and Senior Management

The following sets out the names, business addresses and business occupations of the directors of the Issuer, Funding and Trustees. Because each of the
Issuer, Funding and Trustees is organized as a special purpose company and will be largely passive, it is expected that the directors of each entity in that capacity will manage its operations to the extent necessary.

|                                                                  | Issuer                                              |                                                                           |                          
|----------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------
|                                                                  |                                                     |                                                                           |                          
|Name                                                              |                                                     | Business
      Address                                                    | Business
      Occupation
|                                                                  |                                                     |                                                                           |                          
|Martin
      McDermott                                            | Wilmington
      Trust SP Services (London) Limited | Executive
      Director of Wilmington Trust SP Services (London) Limited
|                                                                  |                                                     | Tower 42                                                                  |                          
|                                                                  |                                                     | 25 Old Broad
      Street                                                 |                          
|                                                                  |                                                     | London EC2N
      1HQ                                                     |                          
|Wilmington
      Trust SP Services (London) Limited               | Wilmington
      Trust SP Services (London) Limited | Management
      of special purpose companies                            
|                                                                  | Tower 42                                            |                                                                          
|                                                                  |                                                     | 25 Old Broad
      Street                                                 |                          
|                                                                  |                                                     | London EC2N
      1HQ                                                     |                          
|David
      Green                                                 | Abbey National
      House                          | Finance
      Director, Banking, Abbey National plc                      
|                                                                  |                                                     | 2 Triton
      Square                                                     |                          
|                                                                  |                                                     | Regents
      Place                                                      |                          
|                                                                  |                                                     | London NW1
      3AN                                                      |                          
|                                                                  |                                                     |                                                                           |                          
|                                                                  | Funding                                             |                                                                           |                          
|                                                                  |                                                     |                                                                           |                          
|Name                                                              |                                                     | Business
      Address                                                    | Business
      Occupation
|                                                                  |                                                     |                                                                           |                          
|Martin
      McDermott                                            | Wilmington
      Trust SP Services (London) Limited | Executive
      Director of Wilmington Trust SP Services (London) Limited
|                                                                  |                                                     | Tower 42                                                                  |                          
|                                                                  |                                                     | 25 Old Broad
      Street                                                 |                          
|                                                                  |                                                     | London EC2N
      1HQ                                                     |                          
|Wilmington
      Trust SP 
      Services (London) 
      Limited | Wilmington
      Trust SP Services (London) Limited | Management
      of special purpose companies                            
|Tower 42                                                          |                                                    
|25 Old Broad
      Street                                         |                                                    
|London EC2N
      1HQ                                             |                                                    
|David
      Green                                                 | Abbey National
      House                          | Finance
      Director, Banking, Abbey National plc                      
|                                                                  |                                                     | 2 Triton
      Square                                                     |                          
|                                                                  |                                                     | Regents
      Place                                                      |                          
|                                                                  |                                                     | London NW1
      3AN                                                      |                          

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|                                                                 | Trustees                                                            |                                                                           |                          
|---------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------
|                                                                 |                                                                     |                                                                           |                          
|Name                                                             |                                                                     | Business
      Address                                                    | Business
      Occupation
|                                                                 |                                                                     |                                                                           |                          
|Martin
      McDermott                                           | Wilmington
      Trust SP Services (London) Limited                 | Executive
      Director of Wilmington Trust SP Services (London) Limited
|                                                                 |                                                                     | Tower 42                                                                  |                          
|                                                                 |                                                                     | 25 Old Broad
      Street                                                 |                          
|                                                                 |                                                                     | London EC2N
      1HQ                                                     |                          
|Wilmington
      Trust SP
      Services (London) 
      Limited | Wilmington
      Trust SP Services (London) Limited                 | Management
      of special purpose companies                            
|Tower 42                                                         |                                                                    
|25 Old Broad
      Street                                        |                                                                    
|London EC2N
      1HQ                                            |                                                                    
|David
      Green                                                | Abbey National
      House                                          | Finance
      Director, Banking, Abbey National plc                      
|                                                                 |                                                                     | 2 Triton
      Square                                                     |                          
|                                                                 |                                                                     | Regents
      Place                                                      |                          
|                                                                 |                                                                     | London NW1
      3AN                                                      |                          
|                                                                 |                                                                     |                                                                           |                          
|                                                                 | David
      Green is an employee of Abbey National plc, the seller.

B.
  Compensation

None
  of the Issuer, Funding or Trustees pays remuneration directly to any director.

C.
  Board Practices

Not
  applicable.

D.
  Employees

Not
  applicable.

E.
  Share Ownership

Not
  applicable.

Item
  7. Major Shareholders and Related Party Transactions

A.
  Major Shareholders

Each of the Issuer, Funding and Trustees is wholly owned by Holmes Holdings Limited, a private limited company incorporated under the laws of England and
Wales. Wilmington Trust SP Services (London) Limited holds all of the beneficial interest in the issued shares of Holmes Holdings Limited on a discretionary trust for persons employed as nurses in the United Kingdom and for charitable purposes.
Wilmington Trust SP Services (London) Limited is not affiliated with Abbey National plc.

B. Related Party Transactions

None, other than with respect to the making of payments in respect to the securities as described in the Registration Statement and Item 3.D. 
Risk Factors.

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C. Interests of Experts and Counsel

Not
  applicable to annual reports on Form 20-F.

Item
  8. Financial Information

For a discussion of the available financial information, see Item 3.A.  Selected Financial Information.

Litigation. The Issuer knows of no material legal proceedings involving
the Issuer. Funding knows of no material legal proceedings involving Funding. Trustees knows of no material legal proceedings involving Trustees or the trust.

Item
  9. The Listing

A.
  Listing Details

Not
  applicable.

B.
  Plan of Distribution

Not
  applicable to annual reports on Form 20-F.

C.
  Markets

The
  principal trading market for each class of Issuer Notes is the London Stock
  Exchange. The Issuer Notes have been listed on the London Stock Exchange since
  July 5, 2001.

D.
  Selling Shareholders

Not
  applicable to annual reports on Form 20-F.

E.
  Dilution

Not
  applicable to annual reports on Form 20-F.

F.
  Expenses of the Issue

Not
  applicable to annual reports on Form 20-F.

Item
  10. Additional Information

A.
  Share Capital

Not
  applicable to annual reports on Form 20-F.

B.
  Memorandum and Articles of Association

Not
  applicable.

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C.
  Material Contracts

Not
  applicable other than with respect to contracts relating to the securities,
  which were described in the Registration Statement on Form S-11 relating to
  the securities (file number 333-13576).

D.
  Exchange Controls

None.

E.
  Taxation

United
  Kingdom Taxation

The
  following section summarises the material UK tax consequences of the purchase,
  ownership and disposition of the Issuer Notes based on current law and practice
  in the UK. The summary assumes that the representations made by the seller that
  the profit in Fundings profit and loss account will not exceed 0.01 per
  cent. of the Funding available revenue receipts and that the profit in the Issuers
  profit and loss account will not exceed 0.02 per cent. of the interest on the
  Issuer term advances under the issuer intercompany loan (subject to the effect
  of compliance with International Financial Reporting Standards (or UK Financial
  Reporting Standards reflecting them)) are correct. It further assumes that all
  payments made pursuant to the final documentation are calculated on arms
  length terms. The summary does not purport to be a complete analysis of all
  tax considerations of the purchase, ownership and disposition of the Issuer
  Notes. It relates to the position of persons who are the absolute beneficial
  owners of Issuer Notes and may not apply to certain classes of persons such
  as dealers or persons connected with the Issuer. Holders of Issuer Notes who
  are unsure as to their tax position should seek their own professional advice.

Taxation of US residents

As discussed in more detail under Withholding tax below, no UK withholding tax will be required in relation to interest payments on the Issuer Notes provided that the Issuer Notes are and remain at all times listed on a recognised stock
exchange, which includes the London Stock Exchange.

As discussed in more detail under Direct assessment of non-UK resident
holders of Issuer Notes to UK tax on interest below, a noteholder who is resident in the US for US tax purposes and who is not resident in the UK for UK tax purposes will
not be subject to UK tax by direct assessment unless such noteholder carries on a trade, profession or vocation through a branch or agency in the UK in connection with which payments on the Issuer Notes are received or to which the Issuer Notes are
attributable and where that noteholder is a company, unless that noteholder carries on a trade in the UK through a permanent establishment in connection with which the payments on the Issuer Notes are received or to which the Issuer Notes are
attributable.

Subject as set out in the rest of this paragraph, residents of the US who are not subject to UK tax by direct assessment are generally not subject to tax in
the UK on payments on the Issuer Notes under the terms of the double tax treaty between the US and the UK (the Treaty) provided that the amounts paid on the Issuer Notes do not exceed the return on comparable debt instruments. To the
extent that the amounts paid do exceed such a return, the UK may tax the excess in accordance with UK domestic law. In order for such US residents to avoid being subject to tax in the UK on such payments, they must satisfy the requirements of the
Limitation on Benefits article of the Treaty and the necessary administrative formalities must be completed. Treaty relief will not be available where a payment on the Issuer Notes is attributable to a permanent establishment of the noteholder
situated in the UK or if certain other exceptions apply.

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Taxation of Funding, the Issuer and Trustees

As discussed in more detail below under UK taxation of Funding and the
Issuer, Funding and the Issuer will generally be subject to UK corporation tax, currently at a rate of 30 per cent., on the profit reflected in their respective profit
and loss accounts as increased by the amounts of any non deductible expenses or losses.

As discussed in more detail below under UK taxation of the
Trustees, Trustees will have no liability to UK tax in relation to amounts which it receives on behalf of Funding or the seller under the mortgages trust.

Except as described in the preceding paragraphs (and as further developed in the corresponding sections below), no views are expressed as regards UK taxation
in relation to the Issuer Notes, the parties to the transaction, or any aspects of the transaction.

Withholding tax

There will be no UK withholding tax in relation to interest payments on the Issuer Notes provided that, so far as concerns deduction by the Issuer or its
paying agents, the Issuer Notes are listed (and remain so listed) on a recognised stock exchange, as defined in Section 841 of the Income and Corporation Taxes Act 1988 (ICTA). On the basis of H.M. Revenue & Customs published interpretation of the relevant legislation, securities which are to be listed on a stock exchange in the UK will satisfy this requirement if they are listed by a
competent authority in the UK and are admitted to trading on a recognised stock exchange in the UK. The London Stock Exchange is currently a recognised stock exchange for this purpose. Noteholders should be aware that H.M. Revenue & Customs is
able to obtain information about individual holders of the Issuer Notes to whom or, in certain circumstances, for whose benefit interest is paid. Information so obtained may, in certain circumstances, be exchanged by H.M. Revenue & Customs with
the tax authorities of the jurisdiction in which the relevant noteholder is resident for tax purposes.

If the Issuer Notes cease to be listed on a recognised stock exchange, an amount must be withheld on account of UK income tax at the lower rate (currently 20
per cent.) from interest paid on them, subject to any direction to the contrary from H.M. Revenue & Customs in respect of such relief as may be available pursuant to the provisions of an applicable double taxation treaty or to the interest being
paid to the persons (including companies within the charge to UK corporation tax) and in the circumstances specified in sections 349A to 349D of ICTA.

Under European Union Directive (2003/48/EC) regarding the taxation of savings income, member states are required, beginning July 1, 2005, to provide to the
tax authorities of other member states details of payments of interest and other similar income paid by a person within its jurisdiction to an individual resident in another member state. However, for a transitional period, Austria, Belgium and
Luxembourg will instead impose a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries).
A number of non-EU countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same date.

Direct assessment of non-UK resident holders of Issuer Notes to UK tax on interest

The interest on the Issuer Notes has a UK source. Accordingly, payments on the Issuer Notes will in principle be within the charge to UK tax even if paid
without withholding or deduction. However, such payments will not be chargeable to UK tax in the hands of a noteholder who is not resident for tax purposes in the UK unless such holder carries on a trade, profession or vocation in the UK through a
UK branch or agency in connection with which the payments are received or to which the Issuer Notes are 39

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attributable (and where that noteholder is a company, unless that noteholder carries on a trade in the UK through a permanent establishment in connection with which the payments are
received or to which the Issuer Notes are attributable), in which case (subject to exemptions for interest received by certain categories of agent such as some brokers and investment managers) tax may be levied on the UK branch, agency or permanent
establishment as the case may be (unless the provisions of an applicable double tax treaty apply to allow relief from such tax).

Taxation of returns: companies within the charge to UK corporation tax

Noteholders who are within the charge to UK corporation tax (other than authorised unit trusts) will normally be subject to tax on all profits and gains
(whether attributable to currency fluctuations or otherwise), including interest arising on or in connection with the Issuer Notes under the loan relationship rules contained in the Finance Act 1996. Any such profits and gains will generally fall to
be calculated in accordance with the statutory accounting treatment of the Issuer Notes in the hands of the relevant noteholder, and will generally be charged to tax as income in respect of each accounting period to which they are allocated, in
accordance with that accounting treatment. Relief may be available in respect of losses (including any foreign exchange losses) or for related expenses on a similar basis.

Taxation of returns: other noteholders

Noteholders who are not within the charge to UK corporation tax and who are resident or ordinarily resident in the UK for UK tax purposes or who carry on a
trade, profession or vocation in the UK through a branch or agency in connection with which interest on the Issuer Notes is received or to which the Issuer Notes are attributable will generally be liable to UK tax on the amount of any interest
received in respect of the Issuer Notes. The series 3 Issuer Notes will not be qualifying corporate bonds within the meaning of Section 117 of the Taxation of Chargeable Gains Act 1992, and therefore a disposal of such an Issuer Note by such a
noteholder may give rise to a chargeable gain or an allowable loss for the purposes of UK capital gains tax.

A disposal of Issuer Notes by a noteholder who is resident or ordinarily resident in the UK for UK tax purposes or who carries on a trade in the UK through a
branch or agency to which the Issuer Notes are attributable may also give rise to a charge to tax on income in respect of an amount representing interest accrued on the Issuer Notes since the preceding payment date. For Issuer Notes which constitute
variable rate securities, taxation in respect of such a disposal will be computed on the basis that such amount as H.M. Revenue & Customs considers to be just and reasonable will be treated as accrued income.

However, the transferee of a variable rate security will not be entitled to any relief on such amount. All of the Issuer Notes will constitute variable rate Issuer Notes for this purpose.

Stamp duty and stamp duty reserve tax

No UK stamp duty or stamp duty reserve tax is payable on the issue or transfer of the offered global Issuer Notes or on the issue or transfer of an Issuer
Note in definitive form.

UK taxation of Funding and the Issuer

Funding and the Issuer will generally be subject to UK corporation tax, currently at a rate of 30 per cent., on the profit reflected in their respective
applicable profit and loss accounts as increased by the amounts of any non-deductible expenses or losses. In respect of Funding, the seller has confirmed that the profit in the profit and loss account drawn in accordance with UK GAAP as applicable
on December 31, 2004 will not exceed 0.01 per cent. of the Funding available revenue receipts. In respect of the Issuer, the seller has confirmed that the profit in the profit and loss account drawn in accordance with UK GAAP as applicable on
December 31, 2004 will not exceed 0.02 per cent. of the interest on the issuer term advances under the issuer intercompany loan. The comments made in this paragraph are subject to those set out in the risk factor Tax payable by Funding or the Issuer may adversely affect the Issuers

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ability to make payments on the Issuer Notes, in particular the section dealing with the interim and
new regimes that H.M. Revenue & Customs are proposing to establish for securitisation companies as a consequence of their compliance with International Financial Reporting Standards (IFRS) (or new UK Financial Reporting Standards
which reflect IFRS).

UK taxation of Trustees

Trustees will have no liability to UK tax in respect of any income, profit or gain arising under these arrangements, apart from a liability to UK corporation
tax on amounts, such as trustee fees and expenses, which are paid to Trustees for its own benefit. Accordingly, Trustees will have no liability to UK tax in relation to amounts which it receives on behalf of Funding or the seller under the mortgages
trust.

United States Taxation

General

The following section summarizes the material federal income tax consequences of the purchase, ownership and disposition of the series 3 class A2 Issuer
Notes, series 3 class B Issuer Notes and series 3 class C Issuer Notes (the US Issuer Notes) that may be relevant to a noteholder that is a US holder (as
defined later in this section). In general, the summary assumes that a holder acquires a US Issuer Note at original issuance and holds such Note as a capital asset. It does not purport to be a comprehensive description of all the tax considerations
that may be relevant to a decision to purchase the US Issuer Notes. In particular, it does not discuss special tax considerations that may apply to certain types of taxpayers, including dealers in stocks, securities or notional principal contracts;
traders in securities electing to mark to market; banks, savings and loan associations and similar financial institutions; taxpayers whose functional currency is other than the US dollar; and taxpayers that hold a US Issuer Note as part of a hedge
or straddle or a conversion transaction, within the meaning of section 1258 of the US Internal Revenue Code of 1986, as amended (the Code). In addition, this summary does not describe any tax consequences arising under the laws of any taxing jurisdiction other than the US federal government.

This summary is based on the US tax laws, regulations, rulings and decisions in effect or available on the effective date of the registration statement. All
of the foregoing are subject to change, and any change may apply retroactively and could affect the continued validity of this summary.

The Issuer suggests that US holders consult their own tax advisors as to the US federal income tax consequences of the purchase, ownership and disposition of
the US Issuer Notes, including the possible application of state, local, non-US or other tax laws, and other US tax issues affecting the transaction.

As used in this section, the term US holder means a person who is a citizen or resident of the United States, a US domestic corporation or partnership, or any other person subject to US federal income tax on a net income basis in respect
of a US Issuer Note.

Characterization of the US Issuer Notes

Although there is no authority regarding the treatment of instruments that are substantially similar to the US Issuer Notes, the Issuer believes that the US
Issuer Notes will be treated as debt for US federal income tax purposes (either of the Issuer or of Funding). The Issuer intends to treat the US Issuer Notes as indebtedness of the Issuer for all purposes, including US tax purposes. The discussion
in the next section assumes this result.

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The US Issuer Notes will not be qualifying assets in the hands of domestic savings and loan associations, real estate investment trusts, or REMICs under
sections 7701(a)(19)(C), 856(c)(5)(B) or 860G(a)(3) of the Code, respectively.

Taxation of US holders of the US Issuer Notes

Qualified Stated Interest.A US holder of a US Issuer Note will
treat stated interest on such US Note as ordinary interest income when paid or accrued, in accordance with its tax method of accounting.

Sales and Retirement.In general, a US holder of a US Issuer
Note will have a basis in such Note equal to the cost of the US Issuer Note to such holder, and reduced by any payments thereon other than payments of stated interest. Upon a sale or exchange of the US Issuer Note, a US holder will generally
recognize gain or loss equal to the difference between the amount realized (less any accrued interest, which would be taxable as such) and the holders tax basis in the US Issuer Note. Such gain or loss will be long-term capital gain or loss if
the US holder has held the US Issuer Note for more than one year at the time of disposition. In certain circumstances, US holders that are individuals may be entitled to preferential treatment for net long-term capital gains. The ability of US
holders to offset capital losses against ordinary income is limited.

Market Discout and Bond Premium.If a US holder purchased US
Issuer Notes for a price greater or less than their stated principal amount, such notes may be subject to special US tax rules relating to market discount or bond premium. US holders should consult their own advisors regarding the tax consequences
of these rules.

US Issuer Notes as debt of Funding

The US Internal Revenue Service could possibly seek to characterize the series 3 class A2 Issuer Notes, series 3 class B Issuer Notes and series 3 class C
Issuer Notes as ownership interests in the issuer series 3A2 term AAA advance, the issuer series 3 term AA advance and the issuer series 3 term BBB advance, respectively, rather than as debt of the Issuer. If the US Internal Revenue Service were
successful in such a characterization, a US holder of a US Issuer Note would be treated as owning (i) a pro rata share of the related issuer term advance between Funding and the Issuer (related advance), which will be treated as debt for US federal income tax purposes and (ii) an interest in the related issuer currency swap. Treasury
regulations permit taxpayers meeting certain requirements to integrate a debt instrument and a related currency hedge and to treat them for most tax purposes as if they were a synthetic debt instrument having the terms of the debt instrument and
hedge combined. Integrating the related advance and issuer currency swap would create a synthetic debt instrument having the characteristics of the US Issuer Notes and hence would produce largely the same result as if the US Issuer Notes were not
recharacterized as debt of Funding.

The integration regulations apply only if a taxpayer creates a record identifying the debt instrument and hedge on or before the close of the date the hedge
is entered into. The Issuer will create a record that is intended to provide such identification effective for each US holder as of the date of acquisition of a US Issuer Note. By its acquisition of a US Issuer Note, each US holder will be treated
as having appointed the Issuer as its agent for this purpose. The US Internal Revenue Service could challenge the effectiveness of such an identification made on behalf of a group of taxpayers. The integration rules would not apply to a US holder
that is related to the Issuer swap provider to the issuer currency swap.

If the issuer currency swap terminated before the US Issuer Notes were retired, and the integration regulations applied, then a US holder may be considered
to recognize gain or loss as if the holder had sold for fair market value his interest in the related advance. Moreover, for periods following such termination, the integration rules would no longer apply to the related advance except in the
discretion of the US Internal Revenue Service.

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If
  the issuer currency swap were not integrated with the related advance, then
  a US holder would calculate separately income and deductions from the issuer
  currency swap and income from the related advance. For most holders, the tax
  consequences of treating the issuer currency swap and related advances separately
  would be similar to the treatment if they were combined, but there could be
  differences. For example, income from the issuer currency swap may be sourced
  differently from income from the related advance. Individual taxpayers may be
  allowed deductions for payments made under the issuer currency swap only as
  a miscellaneous itemized deduction (which is allowed for regular tax purposes
  only subject to limitations and is not allowed for alternative minimum tax purposes).
  US holders may wish to consult their own tax advisors regarding the possible
  treatment of US Issuer Notes as debt of Funding, application of the integration
  rules, and the consequences of an inability to integrate the issuer currency
  swap and the related advance.

F.
  Dividends and Paying Agents

Not
  applicable to annual reports on Form 20-F.

G.
  Statement by Experts

Not
  applicable to annual reports on Form 20-F.

H.
  Documents on Display

The
  Issuer, Funding and Trustees are subject to the information requirements of
  the U.S. Securities Exchange Act of 1934, as amended, and are therefore required
  to file reports, including annual reports on Form 20-F, and other information
  with the U.S. Securities and Exchange Commission. These materials, including
  this annual report and the exhibits thereto, may be inspected and copied at
  the Commissions public reference rooms in Washington, DC, New York, NY
  and Chicago, IL. Please call the Commission at +1-800-732-0330 for further information
  on the public reference rooms. Any filings we make electronically will be made
  available to the public over the Internet at the Commissions web site
  at http://www.sec.gov.

I.
  Subsidiary Information

Not
  applicable to annual reports on Form 20-F.

Item
  11. Quantitative and Qualitative Disclosures About Market Risk

See
  the Periodic Reports referred to in Item 3.A.  Selected Financial
  Information.

Item
  12. Description of Securities Other than Equity Securities

Not
  applicable to annual reports on Form 20-F.

PART
  II

Item
  13. Defaults, Dividend Arrearages and Delinquencies

None.

Item
  14. Material Modifications to the Rights of Security Holders

None.

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Item
  15. Controls and Procedures

Not
  applicable.

Item
  16A. Audit Committee Financial Expert

Not
  applicable.

Item
  16B. Code of Ethics

Not
  applicable.

Item
  16C. Principal Accountant Fees and Services

Not
  applicable.

Item
  16D. Exemptions from the Listing Standards for Audit Committees

Not
  applicable.

Item
  16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not
  applicable.

PART
  III

Item
  17. Financial Statements

Not
  applicable.

Item
  18. Financial Statements

Not
  applicable.

Item
  19. Exhibits

The
  following documents are filed as part of the Annual Report on Form 20-F:

|1. | Exhibit
      1: a copy of the Memorandum and Articles of Association of each of the Issuer,
      Funding and Trustees is incorporated by reference from the previously filed
      Registration Statement on Form S-11 relating to the securities (file number
      333-13576).
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                   
|2. | Exhibit
      2: instruments defining the rights of the security holders are incorporated
      by reference from the previously filed Registration Statement on Form S-11
      relating to the securities (file number 33313576).                                               
|   |                                                                                                                                                                                                                                                                                   
|3. | Exhibit
      10.1: Periodic Report for the period from December 9, 2004 to January 10,
      2005 (incorporated by reference from the Form 6-K previously filed on January
      31, 2005).                                                                                      
|   |                                                                                                                                                                                                                                                                                   
|4. | Exhibit
      10.2: Periodic Report for the period from January 11, 2005 to February 8,
      2005 (incorporated by reference from the Form 6-K previously filed on March
      1, 2005).                                                                                         
|   |                                                                                                                                                                                                                                                                                   

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|5.  | Exhibit
      10.3: Periodic Report for the period from February 9, 2005 to March 8, 2005
      (incorporated by reference from the Form 6-K previously filed on March 18,
      2005).                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                       
|6.  | Exhibit
      10.4: Periodic Report for the period from March 9, 2005 to April 8, 2005
      (incorporated by reference from the Form 6-K previously filed on April 28,
      2005).                                  
|    |                                                                                                                                                                                                                       
|7.  | Exhibit
      10.5: Periodic Report for the period from April 9, 2005 to May 9, 2005 (incorporated
      by reference from the Form 6-K previously filed on May 31, 2001).                                            
|    |                                                                                                                                                                                                                       
|8.  | Exhibit
      10.6: Periodic Report for the period from May 10, 2005 to June 8, 2005 (incorporated
      by reference from the Form 6-K previously filed on June 24, 2005).                                           
|    |                                                                                                                                                                                                                       
|9.  | Exhibit
      10.7: Periodic Report for the period from June 9, 2005 to July 8, 2005 (incorporated
      by reference from the Form 6-K previously filed on August 25, 2005).                                         
|    |                                                                                                                                                                                                                       
|10. | Exhibit
      10.8: Periodic Report for the period from July 9, 2005 to August 8, 2005
      (incorporated by reference from the Form 6-K previously filed on September
      8, 2005).                               
|    |                                                                                                                                                                                                                       
|11. | Exhibit
      10.9: Periodic Report for the period from August 9, 2005 to September 8,
      2005 (incorporated by reference from the Form 6-K previously filed on October
      4, 2005).                            
|    |                                                                                                                                                                                                                       
|12. | Exhibit
      10.10: Periodic Report for the period from September 9, 2005 to October
      10, 2005 (incorporated by reference from the Form 6-K previously filed on
      November 2, 2005).                        
|    |                                                                                                                                                                                                                       
|13. | Exhibit
      10.11: Periodic Report for the period from October 11, 2005 to November
      8, 2005 (incorporated by reference from the Form 6-K previously filed on
      November 23, 2005).                        
|    |                                                                                                                                                                                                                       
|14. | Exhibit
      10.12: Periodic Report for the period from November 9, 2005 to December
      8, 2005 (incorporated by reference from the Form 6-K previously filed on
      December 22, 2005).                        
|    |                                                                                                                                                                                                                       
|15. | Exhibit
      10.13: Periodic Report for the period from December 9, 2005 to January 9,
      2006 (incorporated by reference from the Form 6-K previously filed on January
      17, 2006).                          
|    |                                                                                                                                                                                                                       
|16. | Exhibit
      10.14: Profit and Loss Accounts and Balance Sheets for the period ended
      January 18, 2005 (incorporated by reference from the Form 6-K previously
      filed on February 28, 2005).               
|    |                                                                                                                                                                                                                       
|17. | Exhibit
      10.15: Profit and Loss Accounts and Balance Sheets for the period ended
      April 15, 2005 (incorporated by reference from the Form 6-K previously filed
      on May 31, 2005).                      
|    |                                                                                                                                                                                                                       
|18. | Exhibit
      10.16: Profit and Loss Accounts and Balance Sheets for the period ended
      July 15, 2005 (incorporated by reference from the Form 6-K previously filed
      on August 25, 2005).                    
|    |                                                                                                                                                                                                                       
|19. | Exhibit
      10.17: Profit and Loss Accounts and Balance Sheets for the period ended
      October 17, 2005 (incorporated by reference from the Form 6-K previously
      filed on November 11, 2005).               
|    |                                                                                                                                                                                                                       
|20. | Exhibit
      10.18: Certificate Relating to Financial Information pursuant to the Issuer
      Trust Deed dated April 30, 2006 (incorporated by reference from the Form
      6-K previously filed on June 20, 2006).
|    |                                                                                                                                                                                                                       
|21. | Exhibit
      10.19: Report and Accounts for Holmes Financing (No. 4) PLC for the year
      ended December 31, 2005.                                                                                                 
|    |                                                                                                                                                                                                                       

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|SIGNATURE                                                                                                                                                                                                                                                                                                              
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                       
|Pursuant to the requirements
      of Section 12 of the Securities Exchange Act of 1934, each of the registrant
      certifies that it meets all the requirements for filing on Form 20-F and
      has duly caused this Annual Report to be signed on its behalf by the undersigned,
      thereunto duly authorized.
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|HOLMES TRUSTEES LIMITED                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|By: /s/ Martin McDermott                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                       
|Name:
      Martin McDermott                                                                                                                                                                                                                                                                                           
|Title:
      Director                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|HOLMES FUNDING LIMITED                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|By: /s/ Martin McDermott                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                       
|Name:
      Martin McDermott                                                                                                                                                                                                                                                                                           
|Title:
      Director                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|HOLMES FINANCING (NO.
      4) PLC                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                       
|By: /s/ Martin McDermott                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                       
|Name:
      Martin McDermott                                                                                                                                                                                                                                                                                           
|Title:
      Director                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                       
|Dated: June 27, 2006                                                                                                                                                                                                                                                                                                   

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EXHIBIT
  INDEX

|· | Exhibit
        1: a copy of the Memorandum and Articles of Association of each of the
        Issuer, Funding and Trustees is incorporated by reference from the previously
        filed Registration Statement on Form S-11 relating to the securities (file
        number 333-13576).
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      2: instruments defining the rights of the security holders are incorporated
      by reference from the previously filed Registration Statement on Form S-11
      relating to the securities (file number 333 13576).                                                      
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.1: Periodic Report for the period from December 9, 2004 to January 10,
      2005 (incorporated by reference from the Form 6-K previously filed on January
      31, 2005).                                                                                              
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.2: Periodic Report for the period from January 11, 2005 to February 8,
      2005 (incorporated by reference from the Form 6-K previously filed on March
      1, 2005).                                                                                                 
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.3: Periodic Report for the period from February 9, 2005 to March 8, 2005
      (incorporated by reference from the Form 6-K previously filed on March 18,
      2005).                                                                                                   
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.4: Periodic Report for the period from March 9, 2005 to April 8, 2005
      (incorporated by reference from the Form 6-K previously filed on April 28,
      2005).                                                                                                      
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.5: Periodic Report for the period from April 9, 2005 to May 9, 2005 (incorporated
      by reference from the Form 6-K previously filed on May 31, 2001).                                                                                                                
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.6: Periodic Report for the period from May 10, 2005 to June 8, 2005 (incorporated
      by reference from the Form 6-K previously filed on June 24, 2005).                                                                                                               
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.7: Periodic Report for the period from June 9, 2005 to July 8, 2005 (incorporated
      by reference from the Form 6-K previously filed on August 25, 2005).                                                                                                             
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.8: Periodic Report for the period from July 9, 2005 to August 8, 2005
      (incorporated by reference from the Form 6-K previously filed on September
      8, 2005).                                                                                                   
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.9: Periodic Report for the period from August 9, 2005 to September 8,
      2005 (incorporated by reference from the Form 6-K previously filed on October
      4, 2005).                                                                                                
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.10: Periodic Report for the period from September 9, 2005 to October
      10, 2005 (incorporated by reference from the Form 6-K previously filed on
      November 2, 2005).                                                                                            
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.11: Periodic Report for the period from October 11, 2005 to November
      8, 2005 (incorporated by reference from the Form 6-K previously filed on
      November 23, 2005).                                                                                            
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.12: Periodic Report for the period from November 9, 2005 to December
      8, 2005 (incorporated by reference from the Form 6-K previously filed on
      December 22, 2005).                                                                                            
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.13: Periodic Report for the period from December 9, 2005 to January 9,
      2006 (incorporated by reference from the Form 6-K previously filed on January
      17, 2006).                                                                                              
|  |                                                                                                                                                                                                                                                                                           
|· | Exhibit
      10.14: Profit and Loss Accounts and Balance Sheets for the period ended
      January 18, 2005 (incorporated by reference from the Form 6-K previously
      filed on February 28, 2005).                                                                                   
|  |                                                                                                                                                                                                                                                                                           



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|· | Exhibit 10.15: Profit
      and Loss Accounts and Balance Sheets for the period ended April 15, 2005
      (incorporated by reference from the Form 6-K previously filed on May 31,
      2005).                      
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                       
|· | Exhibit 10.16: Profit
      and Loss Accounts and Balance Sheets for the period ended July 15, 2005
      (incorporated by reference from the Form 6-K previously filed on August
      25, 2005).                    
|  |                                                                                                                                                                                                                       
|· | Exhibit 10.17: Profit
      and Loss Accounts and Balance Sheets for the period ended October 17, 2005
      (incorporated by reference from the Form 6-K previously filed on November
      11, 2005).               
|  |                                                                                                                                                                                                                       
|· | Exhibit 10.18: Certificate
      Relating to Financial Information pursuant to the Issuer Trust Deed dated
      April 30, 2006 (incorporated by reference from the Form 6-K previously filed
      on June 20, 2006).
|  |                                                                                                                                                                                                                       
|· | Exhibit 10.19: Report
      and Accounts for Holmes Financing (No. 4) PLC for the year ended December
      31, 2005.                                                                                                 
|  |                                                                                                                                                                                                                       
|· | Exhibit 10.20: Report
      and Accounts for Holmes Funding Limited for the year ended December 31,
      2005.                                                                                                       
|  |                                                                                                                                                                                                                       
|· | Exhibit 10.21: Report
      and Accounts for Holmes Trustees Limited for the year ended December 31,
      2005.                                                                                                      
|  |                                                                                                                                                                                                                       
|· | Exhibit 12.1: Certificate
      pursuant to section 302 of the Sarbanes-Oxley Act 2002.                                                                                                                               
|  |                                                                                                                                                                                                                       
|· | Exhibit 13.1: Certificate
      pursuant to section 906 of the Sarbanes-Oxley Act 2002.                                                                                                                               
|  |                                                                                                                                                                                                                       



---