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

UNITED STATES
SECURITIES 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 from N/Ato N/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: 333-103179 |                                                        |                        
|---------------------------------- | ------------------------------------------------------ | -----------------------
|Holmes Financing (No. 7) 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: None
Securities
      registered or
to be registered pursuant to Section 12(g) of the Act: None
Securities 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
|------------------------------------------------------------------ | -----------------------------------------
|                                                                   |                                          
|$500,000,000 Series 3 Class A Asset Backed Floating Rate Notes (1) | None                                     
|                                                                   |                                          
|£321,000,000 Series 3 Term AAA Advance (2)                         | None                                     
|                                                                   |                                          
|Funding Interest in the Mortgages Trust (3)                        | None                                     

|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Holmes Financing (No. 7) PLC is the registrant for the Series 3 Class A Issuer Notes.                                                                                                                                         
|(2) | Holmes Funding Limited is the registrant for the Term Advances, and has issued those term advances to Holmes Financing (No. 7) PLC. The Term Advances are the primary source of payments on
the Series 3 Class A 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

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 filer | Accelerated
    filer | Non-accelerated
    filer
|----------------------- | --------------------- | -------------------------

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


|Item 17 | Item
    18 | Financial
    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

|                                                      |                                                                              | Page
|----------------------------------------------------- | ---------------------------------------------------------------------------- | ----
|                                                      |                                                                             
|Presentation
      of Information                     | 1                                                                           
|Forward-looking
      Statements                      | 2                                                                           
|Incorporation
      of Certain Documents by Reference | 2                                                                           
|                                                      | PART
      I                                                                 |     
|Item
      1.                                         | Identity
      of Directors, Senior Management and Advisors                  | 3   
|Item
      2.                                         | Offer
      Statistics and Expected Timetable                                | 3   
|Item
      3.                                         | Key
      Information                                                        | 3   
|Item
      4.                                         | Information
      on the Company                                             | 33  
|Item
      5.                                         | Operating
      and Financial Review and Prospects                           | 33  
|Item
      6.                                         | Directors,
      Senior Management and Employees                             | 34  
|Item
      7.                                         | Major
      Shareholders and Related Party Transactions                      | 36  
|Item
      8.                                         | Financial
      Information                                                  | 36  
|Item
      9.                                         | The
      Listing                                                            | 36  
|Item
      10.                                        | Additional
      Information                                                 | 37  
|Item
      11.                                        | Quantitative
      and Qualitative Disclosures About Market Risk             | 42  
|Item
      12.                                        | Description
      of Securities Other Than Equity Securities                 | 42  
|                                                      | PART
      II                                                                |     
|Item
      13.                                        | Defaults,
      Dividend Arrearages and Delinquencies                        | 42  
|Item
      14.                                        | Material
      Modifications to the Rights of Security Holders               | 43  
|Item
      15.                                        | Controls
      and Procedures                                                | 43  
|Item
      16A                                        | Audit
      Committee Financial Expert                                       | 43  
|Item
      16B.                                       | Code
      of Ethics                                                         | 43  
|Item
      16C.                                       | Principal
      Accountant Fees and Services                                 | 43  
|Item
      16D.                                       | Exemptions
      from the Listing Standards for Audit Committees             | 43  
|Item
      16E.                                       | Purchases
      of Equity Securities by the Issuer and Affiliated Purchasers | 43  
|Item
      17.                                        | Financial
      Statements                                                   | 43  
|Item
      18.                                        | Financial
      Statements                                                   | 43  
|                                                      | PART
      III                                                               |     
|Item
      19.                                        | Exhibits                                                                     | 43  

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PRESENTATION OF INFORMATION

This Annual Report on Form
    20-F relates to Holmes Financing (No. 7) PLC (the Issuer) and
    the following securities (the Issuer Notes), which were issued
    pursuant to a trust deed dated March 26, 2003 (the Issuer Trust Deed),
    between the Issuer and The Chase Manhattan Bank, London Branch, as note trustee
    (the Note Trustee):


| | • | $500,000,000 Series
      3 Class A Asset Backed Floating Rate Notes Due July 2020
| | - | ----------------------------------------------------------------------------------

This Annual Report on Form
    20-F also relates to the following advances made pursuant to the loan confirmation
    intercompany loan agreement dated March 26, 2003 (the Intercompany Loan
    Agreement), between the Issuer, Holmes Funding Limited (Funding),
    and The Chase Manhattan Bank, London Branch, as security trustee and agent
    bank:


| | • | £321,000,000 Series
      3 Term AAA 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 333-103179).


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

Item
  1. Identity of Directors, Senior Management and Advisers

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

| |                                                    |                                                                                           
| | -------------------------------------------------- | ------------------------------------------------------------------------------------------
| | •                                                  | Report and Accounts for Holmes Financing (No. 7) 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, Credit Suisse First
Boston LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Barclays Bank PLC, UBS Limited, J.P. Morgan Securities Ltd., Salomon Brothers
International Limited 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 euro 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 A advances will be extinguished, which would
cause a loss on the class B Issuer Notes and the class M Issuer Notes still outstanding

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 A 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 A
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 A


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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
    M 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 the 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 A 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, term A 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 startup 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 A advances. This means that there will be no corresponding repayments of principal on the class B Issuer Notes or the class M 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 issuer term A advances of each series proportionally and equally,
        until all of those term A
term advances are fully repaid; and                                     
| |                                                                                                                                                                                               
| | then,
        the other term BBB advances of each series proportionally and equally,
        until all of those other
term BBB term advances are fully repaid.                                

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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 term AAA advance is fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | then,
          the series 2 term AAA advance made by Holmes Financing (No. 4) PLC
      until that series 2 term AAA advance is fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | then,
          the series 3A1 term AAA advance made by Holmes Financing (No. 5) PLC
      until that series 3A1 term AAA advance is fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | then, in no order of priority between them
          but in proportion to the respective amounts due, the series 3 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 Holmes Financing
      (No. 4) PLC, 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 2 term 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 2 term AAA 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 the Issuer 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 3 term 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 Holmes Financing
          (No. 4) PLC, 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 the Issuer and
          the series 4 term AAA advances made by Holmes Financing (No. 8) PLC,
      until all of those term AAA advances are fully repaid;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | then, the issuer term AA advances and the other
          term AA advances, in no order of priority between them but in proportion
          to the respective amounts due, until all of those term AA advances
      are fully repaid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| | then,
        the issuer term A advances in no order of priority between them but in
        proportion to the respective amounts due, until all of those term A advances
    are fully repaid; and 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                     
| | finally, the other term BBB advances, in no
        order of priority between them but in proportion to the respective amounts
    due, until all of those other 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:


| | • | any variation agreed with a borrower to control or manage arrears on the loan;                                                                                                                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                               
| | • | any variation in the maturity date of the loan unless, while the previous intercompany loan made by Holmes Financing
(No. 1) PLC is outstanding, it is extended beyond July 2038;                                                             
| |   |                                                                                                                                                                                                                                               
| | • | any variation imposed by statute;                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                               
| | • | any variation of the rate of interest payable in respect of the loan where that rate is offered to the borrowers of
more than 10 per cent. by outstanding principal amount of loans comprised in the trust property in any interest period; or
| |   |                                                                                                                                                                                                                                               
| | • | any variation in the frequency with which the interest payable in respect of the loan is charged.                                                                                                                                             

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.


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

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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 M Issuer Notes were subordinated in right of payment of interest to the class A Issuer Notes.


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


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

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


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

In these circumstances, the issuer term A 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 M 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.


Series 3 class A Issuer Notes may be subject to risk if the trust property deteriorates

If the loans comprising the trust property do not perform as expected, then the series 3 class A Issuer Notes may not be repaid in full; provided that,
following the occurrence of a non-asset trigger event


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(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 will be repaid pro rata within their 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 will be repaid
according pro rata within their class.

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

Investors will pay for the series 3 class A 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 A 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 swaps may adversely affect the funds available to make payments on the Issuer Notes

If any of the issuer swaps terminates, the Issuer may as a result be obliged to pay a termination payment to the relevant issuer swap provider. The amount of
the termination payment will be based on the cost of entering into a replacement issuer swap. 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 swap provider. 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.


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 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 swap provider 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 swap provider has caused the relevant issuer swap 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


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issuer swap (including any extra costs incurred 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 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 swap relates. Furthermore, any termination payment or additional payment or additional amounts required to be paid by the Issuer following termination of an issuer 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 swap relates. Therefore, if the Issuer is obliged to make a termination payment to the relevant issuer swap provider, or to pay any other additional
amount as a result of the termination of the relevant issuer 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 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 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 relevant term advances with the lowest term advance rating include the issuer term A
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 A advances.


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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 A 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 A advances and the issuer term AA advances;                                                                                                                                                                                                                                                        
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | there may be insufficient funds to repay any of the issuer term A advances and the issuer term AA advances prior to
their final repayment dates unless the other net income of Funding is sufficient, after making other prior ranking payments, to reduce any principal deficiency in respect of
the term A advances and term AA advances;                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | if the amount of principal deficiencies exceeds the principal amount outstanding of any of the term 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
and, accordingly, noteholders may not receive the full face value of the class M 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.


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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 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


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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-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.


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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 right
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 which a borrower has against the seller may adversely affect the funds available to the Issuer to repay the Issuer Notes

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.


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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.

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.


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).


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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.


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.


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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 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.


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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, 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.


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.


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In September 2002, the European Commission published a proposal for a directive of theEuropean 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 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

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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 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


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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 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.


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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 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.


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.


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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.


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).


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


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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.


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.


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

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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 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


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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.


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 March 26, 2003
    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 March 26, 2003, 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.


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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.


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

Funding


|Name |  | Business
      Address |  | Business
      Occupation
|---- |  | ---------------------- |  | -------------------------
|     |  |                        |  |                          



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

Trustees


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


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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.


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 November 8, 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


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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.


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 333-103179).


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.


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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.


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, from 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


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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 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.


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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 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 A 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.


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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.


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 A Issuer Notes as ownership interests in the issuer series 3 term AAA
advance 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.


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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.


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

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None.


Item
  14. Material Modifications to the Rights of Security Holders

None.


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 333-103179).
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|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 333- 103179).                                       

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|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).              
|   
|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).

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|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. 7) PLC for the year
      ended December 31, 2005.                                                                                                 
|   
|22. | Exhibit
      10.20: Report and Accounts for Holmes Funding Limited for the year ended
      December 31, 2005.                                                                                                       
|   
|23. | Exhibit
      10.21: Report and Accounts for Holmes Trustees Limited for the year ended
      December 31, 2005.                                                                                                      
|   
|24. | Exhibit
      12.1: Certificate pursuant to section 302 of the Sarbanes-Oxley Act 2002.                                                                                                                               
|   
|25. | Exhibit
      13.1: Certificate pursuant to section 906 of the Sarbanes-Oxley Act 2002.                                                                                                                               

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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:                             
|                                
|                                
|                                
|HOLMES FUNDING
    LIMITED      
|                                
|By:                             
|                                
|                                
|                                
|HOLMES FINANCING
    (NO. 7) PLC
|                                
|By:                             
|                                
|                                
|                                
|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 333-103179).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                            
| | • | 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 333-103179).                                        
| |   |                                                                                                                                                                                                                                                            
| | • | 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. 7) 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.                                                                                                             

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