Document:

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DRAFT: 25/02/03

                                                                  EXHIBIT 10.5.1

THIS AMENDED AND RESTATED MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE is signed
for the purposes of identification on [5th March], 2003 by:

(1)      ALLEN & OVERY of One New Change, London EC4M 9QQ; and

(2)      SIDLEY AUSTIN BROWN & WOOD of  1 Threadneedle Street, London EC2R 8AW.

1.       DEFINITIONS

         Words and expressions used in this Master Definitions and Construction
         Schedule but not defined herein shall, unless otherwise defined in the
         relevant Transaction Document or unless the context otherwise requires,
         have the same meanings as set out in the relevant Issuer Master
         Definitions and Construction Schedule.

         "AA PRINCIPAL DEFICIENCY SUB-LEDGER" means one of three sub-ledgers of
         the Principal Deficiency Ledger corresponding to the Term AA Advances
         which will be established and maintained pursuant to CLAUSE 4.3(b) of
         the Cash Management Agreement;

         "AAA PRINCIPAL DEFICIENCY SUB-LEDGER" means one of three sub-ledgers of
         the Principal Deficiency Ledger corresponding to the Term AAA Advances,
         which will be established and maintained pursuant to CLAUSE 4.3(b) of
         the Cash Management Agreement;

         "ACCESSION UNDERTAKING" means a form of deed of accession to the
         Funding 1 Deed of Charge substantially in the form set out in SCHEDULE
         2 to the Funding 1 Deed of Charge;

         "ACCOUNT BANK" means the bank at which the Mortgages Trustee GIC
         Account, the Funding 1 GIC Account, and the Funding 1 Transaction
         Account are maintained from time to time, being as at the Closing Date,
         The Governor and Company of the Bank of Scotland situated at 116
         Wellington Street, Leeds LS1 4LT and thereafter such other Authorised
         Entity as Funding 1 may choose with the prior written approval of the
         Security Trustee or as the Mortgages Trustee may choose with the prior
         written consent of the Beneficiaries;

         "ACCRUED INTEREST" means as at any date (the "DETERMINATION DATE") on
         or after the date hereof and in relation to any Loan, interest on such
         Loan (not being interest which is currently payable on the
         determination date) which has accrued from and including the Monthly
         Payment Day immediately prior to the determination date to and
         including the determination date;

         "ADDITIONAL FUNDING 1 LIQUIDITY FACILITY PROVIDER" has the meaning
         given in CLAUSE 10.6(a) of the Funding 1 Deed of Charge;

         "ADJUSTED RESERVE FUND LEVEL" means the sum of:

         (a)      the amount standing to the credit of the Reserve Fund; and

         (b)      the amount (if any) then outstanding in respect of item (b) of
                  the relevant Funding 1 Pre-Enforcement Principal Priority of
                  Payments;

         "ADVANCE" means the aggregate of the amount advanced by the Start-up
         Loan Provider to Funding 1 on the Initial Closing Date pursuant to the
         First Start-up Loan Agreement, the amount advanced by the Start-up Loan
         Provider to Funding 1 on the Second Issuer Closing Date pursuant to the
         Second Start-up Loan Agreement and the amount advanced by the Start-up
         Loan Provider or any New Start-up Loan Provider on the New Issuer
         Closing Date

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                                       2

         pursuant to any New Start-up Loan Agreement, or such part of such
         amount as shall be outstanding from time to time;

         "ALTERNATIVE INSURANCE RECOMMENDATIONS" means the recommendations
         contained in the Offer Conditions provided by the Seller to Borrowers
         who elect to arrange independent buildings insurance for their
         Properties;

         "AMENDED AND RESTATED MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE" has
         the same meanings as the definitions of "MASTER DEFINITIONS SCHEDULE"
         and "MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE";

         "ANTICIPATED CASH ACCUMULATION PERIOD" means on any Normal Calculation
         Date, the anticipated number of months required to accumulate
         sufficient Principal Receipts to pay the Relevant Accumulation Amount
         in relation to the relevant Cash Accumulation Advance, which will be
         equal to:

                                     J+K-L
                                     -----
                                    Mx(NxO)

         calculated in months and rounded up to the nearest whole number, where:

         J =      the Relevant Accumulation Amount;

         K =      the aggregate principal amount outstanding on that Normal
                  Calculation Date of:

                  o        each Bullet Term Advance and Scheduled Amortisation
                           Term Advance that was not fully repaid on its
                           relevant Scheduled Repayment Date; and

                  o        each other Bullet Term Advance and Scheduled
                           Amortisation Instalment, the Scheduled Repayment Date
                           of which falls on or before the Scheduled Repayment
                           Date of the relevant Bullet Term Advance or Scheduled
                           Amortisation Instalment;

         L =      the amount of any available cash already standing to the
                  credit of the Cash Accumulation Ledger at the start of that
                  Normal Calculation Date plus the aggregate amount of Cash
                  Accumulation Requirement paid to Funding 1 since the previous
                  Funding 1 Interest Payment Date;

         M =      means:

                  o        on any date prior to or including the 12th Normal
                           Calculation Date to occur following the Initial
                           Closing Date, the sum of each Monthly CPR on the
                           Normal Calculation Dates which have occurred since
                           the Initial Closing Date divided by the number of
                           those Calculation Dates; and

                  o        on any subsequent date, the sum of each Monthly CPR
                           on the 12 most recent Normal Calculation Dates which
                           have occurred prior to that date divided by 12;

         N =      0.85; and

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                                       3

         O =      the aggregate Outstanding Principal Balance of the Loans
                  comprising the Trust Property on the previous Normal
                  Calculation Date (or, if none, the Initial Closing Date);

         "IN ARREARS" or "IN ARREARS" means, in respect of a Mortgage Account,
         that one or more Monthly Payments in respect of such Mortgage Account
         have become due and unpaid by a Borrower;

         "ARREARS OF INTEREST" means, in respect of a Loan on a given date,
         interest, principal (if applicable) and expenses which are due and
         payable on that date;

         "ASSET TRIGGER EVENT" means the event that occurs when there is an
         amount being debited to the AAA Principal Deficiency Sub-Ledger;

         "ASSIGNMENT DATE" means the date of assignment of any New Portfolio to
         the Mortgages Trustee in accordance with CLAUSE 4 of the Mortgage Sale
         Agreement;

         "ASSIGNMENT OF HALIFAX MORTGAGE RE LIMITED MIG POLICIES" means an
         assignment of the Halifax Mortgage Re Limited MIG Policies
         substantially in the form set out in SCHEDULE 8 to the Mortgage Sale
         Agreement;

         "ASSIGNMENT OF THIRD PARTY RIGHTS" means an assignment of Related
         Security and rights of action against third parties substantially in
         the form set out in SCHEDULE 7 to the Mortgage Sale Agreement;

         "AUDITORS" means KPMG Audit Plc of 1 Canada Square, Canary Wharf,
         London E14 5AG or such other internationally independent firm of
         auditors selected from time to time by, (in the case of the Mortgages
         Trustee), the Mortgages Trustee and the Security Trustee, or (in the
         case of Funding 1), Funding 1 and the Security Trustee;

         "AUTHORISED ENTITY" means (a) any entity the short term unsecured,
         unsubordinated and unguaranteed debt of which is rated at least A-1+ by
         S&P, P-1 by Moody's, and F1+ by Fitch or (b) any other entity approved
         in writing by the Security Trustee and the Rating Agencies, in each
         case being an institution authorised to carry on banking business
         (including accepting deposits) under the Financial Services and Markets
         Act 2000;

         "AUTHORISED INVESTMENTS" means:

         (i)      Sterling gilt-edged securities; and

         (ii)     Sterling demand or time deposits, certificates of deposit and
                  short-term debt obligations (including commercial paper)
                  provided that in all cases such investments have a maturity
                  date of 90 days or less and mature on or before the next
                  following Funding 1 Interest Payment Date and the short-term
                  unsecured, unguaranteed and unsubordinated debt obligations of
                  the issuing or guaranteeing entity or the entity with which
                  the demand or time deposits are made (being an authorised
                  person under the Financial Services and Markets Act 2000) are
                  rated at least A-1+ by Standard & Poor's, P-1 by Moody's and
                  F1+ by Fitch or their equivalents by three other
                  internationally recognised rating agencies;

         "AUTHORISED SIGNATORY" means any authorised signatory referred to in,
         as applicable, the Funding 1 Transaction Account Mandate, the Funding 1
         GIC Account Mandate and the Mortgages Trustee GIC Account Mandate;

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                                       4

         "AVERAGE FIXED RATE LOAN BALANCE" has the meaning given in the Funding
         1 Swap Agreement;

         "AVERAGE TRACKER RATE LOAN BALANCE" has the meaning given in the
         Funding 1 Swap Agreement;

         "AVERAGE VARIABLE RATE LOAN BALANCE" has the meaning given in the
         Funding 1 Swap Agreement;

         "BACS" means the Bankers' Automated Clearing Service as amended from
         time to time or any scheme replacing the same;

         "BANK ACCOUNT AGREEMENT" means the agreement entered into on the
         Initial Closing Date between the Account Bank, the Mortgages Trustee,
         Funding 1, the Cash Manager and the Security Trustee which governs the
         operation of the Mortgages Trustee GIC Account, the Funding 1 GIC
         Account and the Funding 1 Transaction Account (as the same may be
         amended and/or supplemented from time to time);

         "BANK ACCOUNTS" means the Mortgages Trustee GIC Account, the Funding 1
         GIC Account, the Funding 1 Transaction Account, the Funding 1 Liquidity
         Facility Stand-by Account and any additional or replacement bank
         accounts opened in the name of either the Mortgages Trustee and/or
         Funding 1 from time to time with the prior written consent of the
         Security Trustee and the Rating Agencies;

         "BBB PRINCIPAL DEFICIENCY SUB-LEDGER" means one of three sub-ledgers of
         the Principal Deficiency Ledger corresponding to the Term BBB Advances
         which will be established and maintained pursuant to CLAUSE 4.3(b) of
         the Cash Management Agreement;

         "BENEFICIARIES" means both Funding 1 and the Seller together, as
         beneficiaries of the Mortgages Trust, and shall include any other
         beneficiary of the Mortgages Trust from time to time pursuant to the
         terms of the Mortgages Trust Deed;

         "BORROWER" means, in relation to a Loan, the individual or individuals
         specified as such in the relevant Mortgage Terms together with the
         individual or individuals (if any) from time to time assuming an
         obligation to repay such Loan or any part of it;

         "BUILDINGS POLICIES" means:

         (a)      all buildings insurance policies relating to freehold
                  Properties which have been taken out in the name of the
                  relevant Borrower (and, in the case of the Halifax Policies,
                  the Seller) in accordance with the applicable Mortgage Terms
                  or the Alternative Insurance Recommendations; and

         (b)      all landlord's buildings insurance policies relating to
                  leasehold Properties;

         "BULLET ACCUMULATION LIABILITY" means, on any Funding 1 Interest
         Payment Date prior to any payment under item (c) of the Funding 1
         Pre-Enforcement Principal Priority of Payments, the aggregate of each
         Relevant Accumulation Amount at that time of each Bullet Term Advance
         which is within a Cash Accumulation Period;

         "BULLET ACCUMULATION SHORTFALL" means at any time that the Cash
         Accumulation Ledger Amount is less than the Bullet Accumulation
         Liability;

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                                       5

         "BULLET TERM ADVANCE" means any term advance where the full amount of
         principal in respect of that term advance is scheduled for repayment on
         a single Funding 1 Interest Payment Date (being the Scheduled Repayment
         Date);

         "BUSINESS DAY" means a day which is a London Business Day, a New York
         Business Day and a TARGET Business Day;

         "CALCULATION DATE" means the first day (or, if not a London Business
         Day, the next succeeding London Business Day) of each month or the date
         on which Funding 1 acquires a further interest in the Trust Property;

         "CALCULATION PERIOD" means the period from and including a Calculation
         Date to but excluding the next following Calculation Date;

         "CALENDAR YEAR" means a year from the beginning of 1st January to the
         end of 31st December;

         "CAPITALISED ARREARS" means, in relation to a Loan at any date (the
         "DETERMINATION DATE"), the amount (if any) at such date of any Arrears
         of Interest in respect of which, at the determination date, each of the
         following conditions have been satisfied:

         (a)      the Seller has, by arrangement with the relevant Borrower,
                  agreed to capitalise such Arrears of Interest; and

         (b)      such Arrears of Interest have been capitalised and added, in
                  the accounts of the Seller (or, if the determination date
                  occurs after the Initial Closing Date, the Mortgages Trustee),
                  to the principal amount outstanding in respect of such Loan;

         "CAPITALISED EXPENSES" means, in relation to a Loan, the amount of any
         expense, charge, fee, premium or payment (excluding, however, any
         Arrears of Interest) capitalised and added to the principal amount
         outstanding in respect of such Loan in accordance with the relevant
         Mortgage Terms (including for the avoidance of doubt, any High
         Loan-to-Value Fee);

         "CAPITALISED INTEREST" means the amount of interest that would have
         been paid on a Loan if not for the Borrower under that Loan taking a
         Payment Holiday;

         "CASH" means cash and/or amounts standing to the credit of a bank
         account, as the context shall require;

         "CASH ACCUMULATION ADVANCE" means a Bullet Term Advance or a Scheduled
         Amortisation Instalment which is within a Cash Accumulation Period;

         "CASH ACCUMULATION LEDGER" means the ledger established and maintained
         by the Cash Manager pursuant to CLAUSE 4.3(a) of the Cash Management
         Agreement;

         "CASH ACCUMULATION LEDGER AMOUNT" means,at any time, the amount
         standing to the credit of the Cash Accumulation Ledger at that time
         (immediately prior to any drawing to be applied on that Interest
         Payment Date and prior to any payment under item (f) of the Funding 1
         Pre-Enforcement Principal Priority of Payments;

         "CASH ACCUMULATION LIABILITY" means, on any Funding 1 Interest Payment
         Date, prior to any payment under item (c) of the Funding 1
         Pre-Enforcement Principal Priority of Payments, the sum of:

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                                       6

         (a)      the Bullet Accumulation Liability at that time; and

         (b)      the aggregate of each Relevant Accumulation Amount at that
                  time of each Scheduled Amortisation Instalment which is within
                  a Cash Accumulation Period;

         "CASH ACCUMULATION PERIOD" means the period beginning on the earlier
         of:

         (a)      the commencement of the Anticipated Cash Accumulation Period
                  relating to the Relevant Accumulation Amount; and

         (b)      in respect of an Original Bullet Term Advance, six months
                  prior to the Scheduled Repayment Date of that Original Bullet
                  Term Advance and, in respect of [an Original] Scheduled
                  Amortisation Instalment, three months prior to the Scheduled
                  Repayment Date of that [Original] Scheduled Amortisation
                  Instalment;

         and ending when Funding 1 has fully repaid the Bullet Term Advance or
         Scheduled Amortisation Instalment, as applicable;

         "CASH ACCUMULATION REQUIREMENT" means on a Calculation Date:

         (a)      the outstanding principal amounts in relation to each Cash
                  Accumulation Advance;

         (b)      plus amounts due in paragraphs 2.2(a) and 2.2(b) of the
                  Funding 1 Pre-Enforcement Principal Priority of Payments;

         (c)      less the amount standing to the credit of the Cash
                  Accumulation Ledger at the last Funding 1 Interest Payment
                  Date (which amount was not distributed on that Funding 1
                  Interest Payment Date to the Second Issuer);

         (d)      less the sum of the Cash Accumulation Requirement paid to
                  Funding 1 on a previous Distribution Date during the relevant
                  Interest Period;

         "CASH ACCUMULATION SHORTFALL" means, at any time, that the Cash
         Accumulation Ledger Amount is less than the Cash Accumulation
         Liability;

         "CASH MANAGEMENT AGREEMENT" means the cash management agreement entered
         into on the Initial Closing Date between the Cash Manager, the
         Mortgages Trustee, Funding 1, and the Security Trustee (as the same may
         be amended and/or supplemented from time to time);

         "CASH MANAGEMENT SERVICES" means the cash management services set out
         in the Cash Management Agreement;

         "CASH MANAGER" means Halifax plc acting, pursuant to the Cash
         Management Agreement, as agent for the Mortgages Trustee, Funding 1 and
         the Security Trustee inter alia to manage all cash transactions and
         maintain certain ledgers on behalf of the Mortgages Trustee, Funding 1
         and the Security Trustee (which expression shall include such other
         person as may be appointed from time to time as Cash Manager pursuant
         to the Cash Management Agreement);

         "CASH MANAGER TERMINATION EVENT" has the meaning given in CLAUSE 13.1
         of the Cash Management Agreement;

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                                       7

         "CERTIFICATE OF TITLE" means a solicitor's or licensed conveyancer's
         report or certificate of title obtained by or on behalf of the Seller
         in respect of each Property substantially in the form of the pro-forma
         set out in the Standard Documentation;

         "CLASS A NOTES" means the Class A First Issuer Notes, the Class A
         Second Issuer Notes and any class A notes issued by any New Issuer;

         "CLEARING AGENCY" means an agency registered under provisions of
         Section 17A of the United States Securities Exchange Act of 1934;

         "CLEARING CORPORATION" means a corporation within the meaning of the
         New York Uniform Commercial Code;

         "CLEARSTREAM, LUXEMBOURG" means Clearstream Banking, societe anonyme;

         "CLOSING DATE" means the Initial Closing Date, the Second Issuer
         Closing Date and any New Issuer Closing Date;

         "CLOSING TRUST PROPERTY" means the Portfolio assigned by the Seller to
         the Mortgages Trustee on any Closing Date;

         "COMPLETION" means the completion of the sale and purchase of the
         relevant Portfolio pursuant to and in accordance with CLAUSE 3 OR 4 (as
         applicable) of the Mortgage Sale Agreement;

         "COLLECTION ACCOUNT" means the collection account in the name of the
         Servicer which is from time to time used for the purpose of collecting,
         directly or indirectly, monies due in respect of the Loans and/or the
         Related Security forming part of the Trust Property;

         "CONVENTION" means the Modified Following Business Day Convention as
         defined in the 2000 ISDA Definitions published by the International
         Swaps and Derivatives Associations;

         "CORPORATE SERVICES AGREEMENTS" means, together, the Funding 1
         Corporate Services Agreement, the First Issuer Corporate Services
         Agreement, the Second Issuer Corporate Services Agreement and the
         Mortgages Trustee Corporate Services Agreement;

         "CPR" means on any Calculation Date the annualised principal repayment
         rate of all the Loans comprised in the Trust Property during the
         previous Calculation Period calculated as follows:

                              1- ((1 - R) /\ (12))

         where "R" equals the result (expressed as a percentage) of the total
         Principal Receipts received during the period of one month (or, if
         shorter, from and including the [Initial] Closing Date) ending on that
         Calculation Date divided by the aggregate Outstanding Principal Balance
         of the Loans comprised in the Trust Property as at the first day of
         that period;

         "CURRENT FUNDING 1 SHARE" means the amount of Trust Property
         beneficially owned by Funding 1 from time to time, as determined in
         accordance with CLAUSE 8 of the Mortgages Trust Deed;

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                                       8

         "CURRENT FUNDING 1 SHARE PERCENTAGE" means the percentage share of
         Funding 1 in the Trust Property from time to time, as determined in
         accordance with CLAUSE 8 of the Mortgages Trust Deed;

         "CURRENT SELLER SHARE" means the amount of Trust Property, beneficially
         owned by the Seller from time to time, as determined in accordance with
         CLAUSE 8 of the Mortgages Trust Deed;

         "CURRENT SELLER SHARE PERCENTAGE" means the percentage share of the
         Seller in the Trust Property from time to time as determined in
         accordance with CLAUSE 8 of the Mortgages Trust Deed;

         "CUSTOMER FILES" means the file or files relating to each Loan
         containing, inter alia:

         (a)      all material correspondence relating to that Loan; and

         (b)      the completed mortgage documentation applicable to the Loan
                  (other than the Title Deeds) including the Valuation Report
                  and the solicitor's or licensed conveyancer's Certificate of
                  Title,

         whether original documentation, electronic form or otherwise;

         "D.D. DATE" means the date of delivery to the Account Bank or BACS (as
         the case may be) of such instructions as may be necessary from time to
         time for the debit of a Borrower's account in respect of which there is
         a direct debit mandate;

         "DEED OF ACCESSION AND RELEASE SUPPLEMENTAL TO THE FUNDING 1 DEED OF
         CHARGE" means the deed so named dated 31st July, 2002;

         "DEED OF CONSENT" means a deed whereby a person in or intended to be in
         occupation of a Property agrees with the Seller to postpone his or her
         interest (if any) in the Property so that it ranks after the interest
         created by the relevant Mortgage;

         "DEED OF POSTPONEMENT" means a deed whereby a mortgagee of a Property
         agrees with the Seller to postpone its mortgage over the Property so
         that the sums secured by it will rank for repayment after the sums
         secured by the relevant Mortgage;

         "DEEDSTORE LOAN" means a type of Loan product that gives the Borrower
         the option to leave a small balance owing on the loan account so that
         the relevant Title Deeds can continue to be lodged with Halifax;

         "DEEMED AAA RATING" means the deemed rating of a Term Advance Rating
         where the corresponding Notes are rated, on the Closing Date thereof,
         A-1+ by S&P, P-1 by Moody's and F1+ by Fitch;

         "DELAYED CASHBACK" means in relation to any Loan, the agreement by the
         Seller to pay an amount to the relevant Borrower after a specified
         period of time following completion of the relevant Loan;

         "DESIGNATED INTEREST PERIOD" has the meaning given to it in CLAUSE 8.3
         of the Funding 1 Liquidity Facility Agreement;

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                                       9

         "DIRECT DEBITING SCHEME" means the scheme for the manual or automated
         debiting of bank accounts operated in accordance with the detailed
         rules of certain members of the Association for Payment Clearing
         Services;

         "DISTRIBUTION DATE" means the date which is two London Business Days
         after each Calculation Date, being the date that the Mortgages Trustee
         shall distribute the Mortgages Trust Available Revenue Receipts and the
         Mortgages Trust Available Principal Receipts to Funding 1 and the
         Seller;

         "DOUBLE TAXATION TREATY" means any convention between the government of
         the United Kingdom and any other government for the avoidance of double
         taxation and the prevention of fiscal evasion with respect to taxes on
         income and capital gains;

         "DRAWDOWN DATE" means, in respect of the First Issuer Intercompany
         Loan, the Initial Closing Date; in respect of the Second Issuer
         Intercompany Loan, the Second Issuer Closing Date and in respect of any
         New Intercompany Loan, the date on which the New Term Advances
         thereunder are made;

         "DRAWDOWN NOTICE" means, in respect of an Intercompany Loan, a notice
         delivered by Funding 1 to the Issuer and the Security Trustee
         requesting a drawing under that Intercompany Loan Agreement;

         "DTC" means The Depository Trust Company;

         "EARLY REPAYMENT FEE" means any fee (other than a Redemption Fee) which
         a Borrower is required to pay in the event that the Borrower is in
         default or his or her Loan becomes repayable for any other mandatory
         reason or he or she repays all or any part of the relevant Loan before
         a specified date;

         "ELIGIBLE LIQUIDITY FACILITY PRINCIPAL REPAYMENTS" means:

         (a)      prior to the occurrence of a Trigger Event:

                  (i)      repayments of principal which are then due and
                           payable in respect of the Original Bullet Term
                           Advances; and

                  (ii)     repayments of principal in respect of Original
                           Scheduled Amortisation Term Advances on their
                           respective final maturity dates only; and

         (b)      on or after the occurrence of a Non-Asset Trigger Event but
                  prior to the occurrence of an Asset Trigger Event, repayments
                  of principal in respect of Original Bullet Term Advances and
                  Original Scheduled Amortisation Term Advances on their
                  respective final maturity dates only,

         in each case prior to the service of an Intercompany Loan Acceleration
         Notice on Funding 1 and taking into account any allocation of principal
         to meet any deficiency in Funding 1's Available Revenue Receipts.

         Following the occurrence of an Asset Trigger Event, the Funding 1
         Liquidity Facility will not be available to repay principal in respect
         of Original Bullet Term Advances or Original Scheduled Amortisation
         Term Advances.

         "ELIGIBLE RESERVE FUND PRINCIPAL REPAYMENTS" means:

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                                       10

         (a)      prior to the occurrence of a Trigger Event:

                  (i)      repayments of principal which are then due and
                           payable in respect of the Original Bullet Term
                           Advances; and

                  (ii)     repayments of principal in respect of Original
                           Scheduled Amortisation Term Advances on their
                           respective final maturity dates only; and

         (b)      on or after the occurrence of a Non-Asset Trigger Event but
                  prior to the occurrence of an Asset Trigger Event, repayments
                  of principal in respect of Original Bullet Term Advances and
                  Original Scheduled Amortisation Term Advances on their
                  respective final maturity dates only,

         in each case prior to the service of an Intercompany Loan Acceleration
         Notice on Funding 1 and taking into account any allocation of principal
         to meet any deficiency in Funding 1's Available Revenue Receipts.

         "ENCUMBRANCE" has the same meaning as "SECURITY INTEREST";

         "ENFORCEMENT PROCEDURES" means the procedures for the enforcement of
         Mortgages undertaken by the Servicer from time to time in accordance
         with the Seller's Policy;

         "EUROCLEAR" means Euroclear Bank S.A./N.V., as operator of the
         Euroclear System or the successor for the time being to such business;

         "EXCHANGE ACT" means the United States Securities Exchange Act of 1934,
         as amended;

         "EXHIBIT" means the exhibit to the Mortgage Sale Agreement which sets
         out details of the Provisional Portfolio and the Standard
         Documentation;

         "EXTENSION REQUEST" has the meaning given in CLAUSE 2.3(a) of the
         Funding 1 Liquidity Facility Agreement;

         "FACILITY OFFICE" means the office through which the Funding 1
         Liquidity Facility Provider (or any replacement liquidity facility
         provider) will perform all or any of its obligations under the Funding
         1 Liquidity Facility Agreement;

         "FINAL REPAYMENT DATE" means the final repayment date of each Term
         Advance, as specified in the relevant Issuer Master Definitions and
         Construction Schedule;

         "FINANCIAL YEAR" means the twelve month period ending on the last day
         of the calendar year;

         "FIRST DEED OF ACCESSION" means the deed of accession to the Funding 1
         Deed of Charge entered into on or about the Second Issuer Closing Date
         between Funding 1, the First Issuer, the Second Issuer, the Corporate
         Services Provider, the Account Bank, the Security Trustee, the Seller,
         the First Start-up Loan Provider, the Cash Manager, the Funding 1 Swap
         Provider and the Funding 1 Liquidity Facility Provider, as the same may
         be supplemented, amended and/or restated from time to time;

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

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                                       11

         "FIRST ISSUER INTERCOMPANY LOAN AGREEMENT" means the First Issuer
         Intercompany Loan Confirmation and the Intercompany Loan Terms and
         Conditions together entered into on the Initial Closing Date by the
         First Issuer, Funding 1 and the Security Trustee (as the same may be
         amended and/or supplemented from time to time);

         "FIRST START-UP LOAN" means the start-up loan that the Start-up Loan
         Provider made available to Funding 1 pursuant to the First Start-up
         Loan Agreement;

         "FIRST START-UP LOAN AGREEMENT" means the agreement entered into on the
         Initial Closing Date between Funding 1, the First Start-up Loan
         Provider and the Security Trustee relating to the provision of the
         First Start-up Loan to Funding 1 (as the same may be amended and/or
         supplemented from time to time);

         "FIRST START-UP LOAN PROVIDER" means the Start-up Loan Provider in its
         capacity as provider of the First Start-up Loan;

         "FITCH" means Fitch Ratings Limited;

         "FIXED RATE LOANS" means those Loans to the extent that and for such
         time that the interest rate payable by the Borrower on all or part of
         the Outstanding Principal Balance does not vary and is fixed for a
         certain period of time by the Seller;

         "FLEXIBLE DRAW CAPACITY" means an amount equal to the excess of (1) the
         maximum amount that Borrowers may draw under Flexible Loans included in
         the Trust Property (whether or not drawn) over (2) the aggregate
         principal balance of actual Flexible Loan advances in the Trust
         Property on the relevant Calculation Date;

         "FLEXIBLE LOAN" means a type of Loan product that typically
         incorporates features that give the Borrower options to, among other
         things, make further drawings on the loan account and/or to overpay or
         underpay interest and principal in a given month;

         "FLEXIBLE LOAN CONDITIONS" means Mortgage Conditions applicable to any
         Flexible Loan;

         "FLEXIBLE LOAN DRAWING" means any further drawing of monies made by a
         Borrower under a Flexible Loan other than the Initial Advance;

         "FREEDOM OF AGENCY INDEMNITY POLICY" means the freedom of agency
         indemnity policy written by Royal & Sun Alliance Insurance PLC in
         favour of the Seller and any endorsements or extensions thereto as
         issued from time to time, or any such similar alternative or
         replacement policy or policies as may in future be issued in favour of
         the Seller;

         "FSMA 2000" or "FSMA" means the Financial Services and Markets Act 2000
         (as amended from time to time);

         "FUNDING 1" means Permanent Funding (No. 1) Limited (registered number
         4267660), a limited company incorporated under the laws of England and
         Wales, whose registered office is at Blackwell House, Guildhall Yard,
         London EC2V 5AE;

         "FUNDING 1 AGREEMENTS" or "FUNDING 1 TRANSACTION DOCUMENTS" means each
         of the Transaction Documents to which Funding 1 is a party (as the same
         may be amended and/or supplemented from time to time) including the
         Servicing Agreement, the Mortgages Trust Deed, the Halifax Deed and
         Power of Attorney, the Funding 1 Deed of Charge, the Funding 1 Swap
         Agreement, the Funding 1 Corporate Services Agreement, the Funding 1
         Liquidity

<PAGE>

                                       12

         Facility Agreement, the First Issuer Intercompany Loan Agreement, the
         Second Issuer Intercompany Loan Agreement, the Cash Management
         Agreement, the Bank Account Agreement, the Funding 1 Guaranteed
         Investment Contract, the First Start-up Loan Agreement, the Second
         Start-up Loan Agreement, the Mortgage Sale Agreement, the Seller Power
         of Attorney, the Insurance Acknowledgements, the Insurance Endorsements
         and all other agreements referred to therein or otherwise referred to
         as "Funding 1 Agreements" in each Accession Undertaking entered into
         by, inter alios, Funding 1 and the Security Trustee, from time to time;

         "FUNDING 1 AVAILABLE PRINCIPAL RECEIPTS" means on the day falling four
         Business Days prior to each Funding 1 Interest Payment Date, an amount
         equal to the aggregate of:

         (i)      all Funding 1 Principal Receipts received by Funding 1 during
                  the Interest Period ending on the relevant Funding 1 Interest
                  Payment Date;

         (ii)     all other Funding 1 Principal Receipts standing to the credit
                  of the Cash Accumulation Ledger which are to be applied on the
                  next Funding 1 Interest Payment Date to repay a Bullet Term
                  Advance and/or, subject to Rule 1 as set out in PARAGRAPH
                  2.2(a) of PART II of SCHEDULE 3 to the Funding 1 Deed of
                  Charge, a Scheduled Amortisation Instalment, or to make a
                  payment under items (a) or (b) of the Funding 1
                  Pre-Enforcement Principal Priority of Payments and, if such
                  Funding 1 Interest Payment Date occurs on or after a Trigger
                  Event, the remainder of such receipts standing to the credit
                  of the Cash Accumulation Ledger;;

         (iii)    the amounts (if any) to be credited to the Principal
                  Deficiency Ledger pursuant to paragraphs (g), (i) and (k) in
                  the Funding 1 Pre-Enforcement Revenue Priority of Payments on
                  the relevant Funding 1 Interest Payment Date;

         (iv)     in so far as available for and needed to make Eligible
                  Liquidity Facility Principal Repayments, any amounts available
                  to be drawn under the Funding 1 Liquidity Facility (but less
                  any amounts applied or to be applied on the relevant date in
                  payment of interest and other revenue expenses as set out in
                  paragraphs (a) to (f), (h) and (j) (inclusive) of the Funding
                  1 Pre-Enforcement Revenue Priority of Payments plus any
                  amounts which will be repaid to the Funding 1 Liquidity
                  Facility Provider under item (a) of the relevant priority of
                  payments (relating to the allocation of Funding 1 Available
                  Principal Receipts) on the next Funding 1 Interest Payment
                  Date (i.e. occurring at the end of such period of four
                  business days) to the extent that such repayment is available
                  to be redrawn on that Funding 1 Interest Payment Date); and

         (v)      in so far as available for and needed to make Eligible Reserve
                  Fund Principal Repayments, the amount that would then be
                  standing to the credit of the Reserve Ledger (but less any
                  amounts applied or to be applied on the relevant date in
                  payment of interest and other revenue expenses as set out in
                  paragraphs (a) to (l) (inclusive) of the Funding 1
                  Pre-Enforcement Revenue Priority of Payments plus any amounts
                  which will be credited to the Reserve Ledger under item (b) of
                  the relevant priority of payments (relating to the allocation
                  of Funding 1 Available Principal Receipts) on the next Funding
                  1 Interest Payment Date (i.e. occurring at the end of such
                  period of four business days),

<PAGE>

                                       13

         less

         (vi)     the amounts to be applied on the relevant Funding 1 Interest
                  Payment Date to pay paragraphs (a) to (f) (inclusive), (h) and
                  (j) of the Funding 1 Pre-Enforcement Revenue Priority of
                  Payments;

         "FUNDING 1 AVAILABLE REVENUE RECEIPTS" means on the day falling four
         Business Days prior to each Funding 1 Interest Payment Date, an amount
         equal to the aggregate of:

         (a)      all Mortgages Trust Available Revenue Receipts distributed to
                  Funding 1 during the Interest Period ending on the immediately
                  following Funding 1 Interest Payment Date;

         (b)      any amounts paid by the Seller to Funding 1 in consideration
                  of the Seller acquiring part of the Funding 1 Share of the
                  Trust Property;

         (c)      other net income of Funding 1 including all amounts of
                  interest received on the Funding 1 GIC Account, the Funding 1
                  Transaction Account and/or Authorised Investments, amounts
                  received by Funding 1 under the Funding 1 Swap Agreement
                  (other than any early termination amount received by Funding 1
                  under the Funding 1 Swap Agreement), in each case to be
                  received on or prior to the immediately following Funding 1
                  Interest Payment Date; and

         (d)      the amount standing to the credit of the Reserve Ledger;

         less any payment made by the Seller to Funding 1 of the amount
         outstanding under an Intercompany Loan and less the proceeds of any New
         Intercompany Loan received by Funding 1;

         "FUNDING 1 BANK ACCOUNTS" means the Funding 1 GIC Account, the Funding
         1 Transaction Account, the Funding 1 Liquidity Facility Stand-by
         Account and such other bank account(s) held in the name of Funding 1
         with the approval of the Security Trustee from time to time;

         "FUNDING 1 CHARGED PROPERTY" means the property charged by Funding 1
         pursuant to CLAUSES 3.1 to 3.5 (inclusive) of the Funding 1 Deed of
         Charge;

         "FUNDING 1 CORPORATE SERVICES FEE LETTER" means the letter dated the
         date of the Funding 1 Corporate Services Agreement between, inter
         alios, Funding 1, PECOH, Holdings, the Security Trustee and the Funding
         1 Corporate Services Provider, setting out the amount of fees payable
         to the Funding 1 Corporate Services Provider by Funding 1;

         "FUNDING 1 CORPORATE SERVICES AGREEMENT" means in respect of Holdings,
         Funding 1 and the Post-Enforcement Call Option Holder, the agreement
         dated on the Initial Closing Date and made between the Funding 1
         Corporate Services Provider, the Share Trustee, Holdings, Funding 1,
         the Post-Enforcement Call Option Holder, Halifax and the Security
         Trustee for the provision by the Funding 1 Corporate Services Provider
         of certain corporate services and personnel to Funding 1, Holdings and
         the Post-Enforcement Call Option Holder (as the same may be amended
         and/or supplemented from time to time);

         "FUNDING 1 CORPORATE SERVICES PROVIDER" means Structured Finance
         Management Limited or such other person or persons for the time being
         acting as corporate services provider to Funding 1, Holdings and the
         Post-Enforcement Call Option Holder under the Funding 1 Corporate
         Services Agreement;

<PAGE>
                                       14

         "FUNDING 1 DEED OF CHARGE" means the deed of charge entered into on the
         Initial Closing Date between Funding 1, the First Issuer, the Corporate
         Services Provider, the Account Bank, the Security Trustee, the Seller,
         the First Start-up Loan Provider, the Cash Manager, the Funding 1 Swap
         Provider and the Funding 1 Liquidity Facility Provider, as supplemented
         and amended by the Deed of Accession and Release Supplemental to the
         Funding 1 Deed of Charge and as supplemented and amended by the First
         Deed of Accession and as the same may be further supplemented, amended
         and/or restated or varied from time to time;

         "FUNDING 1 GIC ACCOUNT" means the account in the name of Funding 1 and
         the Security Trustee (sort code 12-08-03, account number o) held at the
         Account Bank and maintained subject to the terms of the Funding 1
         Guaranteed Investment Contract, the Bank Account Agreement and the
         Funding 1 Deed of Charge or such additional or replacement account as
         may for the time being be in place with the prior consent of the
         Security Trustee;

         "FUNDING 1 GIC ACCOUNT AGREEMENT" has the same meaning as "FUNDING 1
         GUARANTEED INVESTMENT CONTRACT";

         "FUNDING 1 GIC ACCOUNT MANDATE" means the bank account mandate between
         Funding 1 and the Account Bank relating to the operation of the Funding
         1 GIC Account;

         "FUNDING 1 GIC BALANCE" means, on any day during an Interest Period,
         the amount standing to the credit of the Funding 1 GIC Account as at
         the opening of business on such day;

         "FUNDING 1 GIC PROVIDER" means The Governor and Company of the Bank of
         Scotland acting pursuant to the Funding 1 Guaranteed Investment
         Contract and or such other person for the time being acting as provider
         of a guaranteed investment contract to Funding 1;

         "FUNDING 1 GIC RATE" means the rate of interest accruing on the balance
         standing to the credit of the Funding 1 GIC Account equal to a rate of
         three month LIBOR less 0.25 per cent. per annum;

         "FUNDING 1 GUARANTEED INVESTMENT CONTRACT" or "FUNDING 1 GIC ACCOUNT
         AGREEMENT" means the guaranteed investment contract entered into on or
         about the Initial Closing Date between Funding 1, the Funding 1 GIC
         Provider, the Cash Manager and the Security Trustee, in relation to
         interest to be earned on the Funding 1 GIC Balance (as the same may be
         amended and/or supplemented from time to time);

         "FUNDING 1 INCOME DEFICIT" means the amount of the shortfall between
         Funding 1 Available Revenue Receipts (including the Reserve Fund) and
         the amounts required to pay items (a) to (e) (inclusive), (g), (i) and
         (k) of the Funding 1 Pre-Enforcement Revenue Priority of Payments;

         "FUNDING 1 INTEREST PAYMENT DATE" means the 10th day of September,
         December, March and June in each year (or, if such day is not a
         Business Day, the next succeeding Business Day);

         "FUNDING 1 LEDGERS" means the Funding 1 Principal Ledger, the Funding 1
         Revenue Ledger, the Reserve Ledger, the Principal Deficiency Ledger,
         the Intercompany Loan Ledger, the Cash Accumulation Ledger and the
         Funding 1 Liquidity Facility Ledger;

         "FUNDING 1 LIQUIDITY DOCUMENTS" means the Funding 1 Liquidity Facility
         Agreement, a Novation Certificate or any other document designated as
         such by the Funding 1 Liquidity Facility Provider and Funding 1;

<PAGE>
                                       15

         "FUNDING 1 LIQUIDITY DRAWING" means a Funding 1 Liquidity Facility
         Drawing or a Funding 1 Liquidity Facility Stand-by Drawing as the
         context so requires;

         "FUNDING 1 LIQUIDITY FACILITY" means the Initial Funding 1 Liquidity
         Facility and/or the Further Funding 1 Liquidity Facility, as the
         context requires;

         "FUNDING 1 LIQUIDITY FACILITY AGREEMENT" means the liquidity facility
         agreement made on the Initial Closing Date and amended and restated on
         or about the Second Issuer Closing Date between Funding 1, the Funding
         1 Liquidity Facility Provider, the Cash Manager and the Security
         Trustee pursuant to which the Funding 1 Liquidity Facility Provider
         agreed to provide Funding 1, from time to time during the Funding 1
         Liquidity Facility Commitment Period, with advances for the purposes
         specified therein, subject to and in accordance with the terms thereof
         (as the same may be further amended and/or supplemented from time to
         time);

         "FUNDING 1 LIQUIDITY FACILITY COMMITMENT" means the Initial Funding 1
         Liquidity Facility Commitment and/or the Further Funding 1 Liquidity
         Facility Commitment, as the context requires;

         "FUNDING 1 LIQUIDITY FACILITY COMMITMENT PERIOD" means, subject to
         [CLAUSE 2.3] of the Liquidity Facility Agreement, the period from and
         including the Initial Closing Date up to and excluding the date falling
         364 days after the Initial Closing Date or, if such date is not a
         Business Day, the preceding Business Day or, if earlier, the date on
         which the Funding 1 Liquidity Facility Commitment is reduced to zero
         pursuant to the provisions of the Funding 1 Liquidity Facility
         Agreement;

         "FUNDING 1 LIQUIDITY FACILITY DEFAULT" means an event specified as such
         in [CLAUSE 16.1] of the Funding 1 Liquidity Facility Agreement;

         "FUNDING 1 LIQUIDITY FACILITY DRAWDOWN DATE" means the date of the
         advance of a Funding 1 Liquidity Facility Drawing or a Funding 1
         Liquidity Facility Stand-by Drawing which date shall be an Funding 1
         Interest Payment Date;

         "FUNDING 1 LIQUIDITY FACILITY DRAWDOWN NOTICE" means a notice
         substantially in the form set out in SCHEDULE 3 to the Funding 1
         Liquidity Facility Agreement;

         "FUNDING 1 LIQUIDITY FACILITY DRAWING" means an Initial Funding 1
         Liquidity Facility Drawing and/or a Further Funding 1 Liquidity
         Facility Drawing, as the context requires;

         "FUNDING 1 LIQUIDITY FACILITY INTEREST PERIOD" means, with respect to a
         Funding 1 Liquidity Facility Loan, each successive period beginning on
         (and including) an Funding 1 Interest Payment Date and ending on (but
         excluding) the next following Funding 1 Interest Payment Date except
         that the first Funding 1 Liquidity Facility Interest Period shall start
         on the Funding 1 Liquidity Facility Drawdown Date for that Funding 1
         Liquidity Facility Loan and end on the day before the next following
         Funding 1 Interest Payment Date;

         "FUNDING 1 LIQUIDITY FACILITY LEDGER" means a ledger to be maintained
         by the Cash Manager pursuant to CLAUSE 4.3 of the Cash Management
         Agreement;

         "FUNDING 1 LIQUIDITY FACILITY LOAN" means the Initial Funding 1
         Liquidity Facility Loan and/or the Initial Funding 1 Liquidity Facility
         Stand-by Loan and/or the Further Funding 1 Liquidity Facility Loan and
         /or the Further Funding 1 Liquidity Facility Stand-by Loan, as the
         context requires;

<PAGE>
                                       16

         "FUNDING 1 LIQUIDITY FACILITY MARGIN" means nought point five per cent.
         (0.50%) per annum;

         "FUNDING 1 LIQUIDITY FACILITY PROVIDER" means JPMorgan Chase Bank,
         acting through its office at 125 London Wall, London EC2Y 5AJ and/or
         such other bank or banks with at least the Requisite Ratings which
         agrees to provide a liquidity facility to Funding 1 on substantially
         similar terms to the Funding 1 Liquidity Facility Agreement;

         "FUNDING 1 LIQUIDITY FACILITY REQUEST" means a request substantially in
         the form set out in SCHEDULE 3 to the Funding 1 Liquidity Facility
         Agreement made by Funding 1 for a Funding 1 Liquidity Facility Drawing
         or a Funding 1 Liquidity Facility Stand-by Drawing pursuant to a
         Funding 1 Liquidity Drawdown Notice;

         "FUNDING 1 LIQUIDITY FACILITY STAND-BY ACCOUNT" means an account to be
         opened in the name of Funding 1 with the Funding 1 Liquidity Facility
         Provider or, if the Funding 1 Liquidity Facility Provider ceases to
         have the Requisite Ratings, the Funding 1 Account Bank or, if the
         Funding 1 Account Bank ceases to have the Requisite Ratings, a bank
         which has the Requisite Ratings;

         "FUNDING 1 LIQUIDITY FACILITY STAND-BY DEPOSIT" means the amount
         standing to the credit of the Funding 1 Liquidity Facility Stand-by
         Account from time to time together with interest on such deposit;

         "FUNDING 1 LIQUIDITY FACILITY STAND-BY DRAWING" means an Initial
         Funding 1 Liquidity Facility Stand-by Drawing and/or a Further Funding
         1 Liquidity Facility Stand-by Drawing, as the context requires;

         "FUNDING 1 LIQUIDITY REVENUE SHORTFALL" means the amount required to
         meet all and any payments under the Funding 1 Pre-Enforcement Revenue
         Priority of Payments;

         "FUNDING 1 LIQUIDITY PRINCIPAL SHORTFALL" means the amount required to
         meet all and any payments under the Funding 1 Pre-Enforcement Principal
         Priority of Payments;

         "FUNDING 1 LIQUIDITY SHORTFALL" means an Initial Funding 1 Liquidity
         Facility Stand-by Shortfall and/or a Further Funding 1 Liquidity
         Facility Stand-by Shortfall, as the context requires;

         "FUNDING 1 LIQUIDITY STAND-BY FACILITY" means the Initial Funding 1
         Liquidity Stand-by Facility and/or the Further Funding 1 Liquidity
         Stand-by Facility, as the context requires;

         "FUNDING 1 LIQUIDITY SUBORDINATED AMOUNTS" means the sum of (i) any
         additional amounts due to any withholding taxes and increased costs on
         the provision of the Funding 1 Liquidity Facility and (ii) any
         additional costs incurred by the Funding 1 Liquidity Facility Provider
         to comply with the requirements of the Bank of England, the Financial
         Services Authority and/or the European Central Bank and/or changes to
         the capital adequacy rules applicable to the Funding 1 Liquidity
         Facility Provider and Funding 1;

         "FUNDING 1 POST-ENFORCEMENT PRIORITY OF PAYMENTS" means the order of
         priority in which the Security Trustee will apply all monies following
         an Intercompany Loan Event of Default and enforcement of the Funding 1
         Security (as set out in PART III of SCHEDULE 3 to the Funding 1 Deed of
         Charge);

         "FUNDING 1 POWER OF ATTORNEY" means the Security Power of Attorney;

<PAGE>
                                       17

         "FUNDING 1 PRE-ENFORCEMENT PRINCIPAL PRIORITY OF PAYMENTS" means the
         order in which, prior to enforcement of the Funding 1 Security, the
         Cash Manager will apply the Funding 1 Available Principal Receipts on
         each Funding 1 Interest Payment Date, as set out in PART II of SCHEDULE
         3 to the Funding 1 Deed of Charge;

         "FUNDING 1 PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS" means the
         order of priority in which Funding 1 Available Revenue Receipts will be
         applied prior to the enforcement of the Funding 1 Security as set out
         in PART I of SCHEDULE 3 to the Funding 1 Deed of Charge;

         "FUNDING 1 PRINCIPAL LEDGER" means the ledger on which receipts and
         payments of Funding 1 Principal Receipts will be recorded by the Cash
         Manager;

         "FUNDING 1 PRINCIPAL PRIORITY OF PAYMENTS" means the order of priority
         for the application of Funding 1 Available Principal Receipts, prior to
         enforcement of the Funding 1 Security, set out in each Intercompany
         Loan Agreement and in PART II of SCHEDULE 3 to the Funding 1 Deed of
         Charge;

         "FUNDING 1 PRINCIPAL RECEIPTS" means the Funding 1 Share of Principal
         Receipts received by Funding 1 from the Mortgages Trustee on each
         Distribution Date;

         "FUNDING 1 PRIORITY OF PAYMENTS" means, as applicable, the Funding 1
         Post-Enforcement Priority of Payments, the Funding 1 Pre-Enforcement
         Revenue Priority of Payments and/or, as the case may be, the Funding 1
         Principal Priorities of Payment;

         "FUNDING 1 REVENUE LEDGER" means the ledger on which the Cash Manager
         will record all monies received by Funding 1 during an Interest Period
         other than the Funding 1 Principal Receipts;

         "FUNDING 1 REVENUE RECEIPTS" means the Funding 1 Share of Mortgages
         Trust Available Revenue Receipts received by Funding 1 from the
         Mortgages Trustee on each Distribution Date;

         "FUNDING 1 SECURED CREDITORS" means the Security Trustee, the Funding 1
         Swap Provider, the Cash Manager, the Funding 1 Liquidity Facility
         Provider, the Account Bank, the First Issuer, the Second Issuer, the
         Seller, the Corporate Services Provider, the First Start-up Loan
         Provider, the Second Start-up Loan Provider, the Funding 1 GIC Provider
         and such other creditors of Funding 1 who may accede to the Funding 1
         Deed of Charge from time to time pursuant to an Accession Undertaking
         (including, for the avoidance of doubt, any New Issuer);

         "FUNDING 1 SECURED OBLIGATIONS" means the moneys and liabilities which
         Funding 1 covenants and undertakes in CLAUSE 2 of the Funding 1 Deed of
         Charge to pay or discharge and all claims, demands or damages for
         breach of any such covenant, and references to Funding 1 Secured
         Obligations includes references to any of them;

         "FUNDING 1 SECURITY" means the security granted by Funding 1 to the
         Security Trustee under the terms of the Funding 1 Deed of Charge;

         "FUNDING 1 SHARE" means, prior to the first Calculation Date, the
         Initial Funding 1 Share and thereafter means the Current Funding 1
         Share;

         "FUNDING 1 SHARE PERCENTAGE" means, prior to the first Calculation
         Date, the Initial Funding 1 Share Percentage and thereafter means the
         Current Funding 1 Share Percentage;

<PAGE>
                                       18

         "FUNDING 1 SHARE/SELLER SHARE LEDGER" means the ledger to be maintained
         by the Cash Manager (in accordance with the Cash Management Agreement
         and the Mortgages Trust Deed), on behalf of the Mortgages Trustee and
         the Beneficiaries, to record the Current Funding 1 Share, the Current
         Funding 1 Share Percentage, the Current Seller Share and the Current
         Seller Share Percentage of the Trust Property;

         "FUNDING 1 SWAP" means the swap documented under the Funding 1 Swap
         Agreement which enables Funding 1 to hedge against the possible
         variance between the Mortgages Trustee Variable Base Rate payable on
         the Variable Rate Loans, the fixed rates of interest payable on the
         Fixed Rate Loans and the rates of interest payable on the Tracker Rate
         Loans and a LIBOR based rate for three-month sterling deposits;

         "FUNDING 1 SWAP AGREEMENT" means the ISDA Master Agreement and schedule
         relating to the Funding 1 Swap entered into on the Initial Closing Date
         (as amended and restated on or about the Second Issuer Closing Date)
         and any confirmation documented thereunder from time to time, each
         between Funding 1, the Funding 1 Swap Provider and the Security Trustee
         (as the same may be further amended and/or restated from time to time);

         "FUNDING 1 SWAP EXCLUDED TERMINATION AMOUNT" means in relation to the
         Funding 1 Swap Agreement an amount equal to:

         (a)      the amount of any termination payment due and payable to the
                  Funding 1 Swap Provider as a result of a Funding 1 Swap
                  Provider Default or a Funding 1 Swap Provider Downgrade
                  Termination Event;

                  less

         (b)      the amount, if any, received by Funding 1 from a replacement
                  swap provider upon entry by Funding 1 into an agreement with
                  such replacement swap provider to replace the Funding 1 Swap
                  Agreement which has terminated as a result of such Funding 1
                  Swap Provider Default or following the occurrence of such
                  Funding 1 Swap Provider Downgrade Termination Event;

         "FUNDING 1 SWAP PROVIDER" means Halifax plc acting in its capacity as
         the Funding 1 Swap Provider pursuant to the Funding 1 Swap Agreement;

         "FUNDING 1 SWAP PROVIDER DEFAULT" means the occurrence of an Event of
         Default (as defined in the Funding 1 Swap Agreement) where the Funding
         1 Swap Provider is the Defaulting Party (as defined in the Funding 1
         Swap Agreement);

         "FUNDING 1 SWAP PROVIDER DOWNGRADE TERMINATION EVENT" means the
         occurrence of an Additional Termination Event (as defined in the
         Funding 1 Swap Agreement) following the failure by the Funding 1 Swap
         Provider to comply with the requirements of the ratings downgrade
         provisions set out in the Funding 1 Swap Agreement;

         "FUNDING 1 TRANSACTION ACCOUNT" means the account in the name of
         Funding 1 (account no. o, sort code 12-08-83) held with the Account
         Bank and maintained subject to the terms of the Bank Account Agreement
         and the Funding 1 Deed of Charge or such other account as may for the
         time being be in place with the prior consent of the Security Trustee
         and designated as such;

<PAGE>
                                       19

         "FUNDING 1 TRANSACTION ACCOUNT MANDATE" means the bank account mandate
         between Funding 1 and the Account Bank relating to the operation of the
         Funding 1 Transaction Account;

         "FUNDING 1 TRANSACTION DOCUMENTS" has the same meaning as "FUNDING 1
         AGREEMENTS";

         "FUNDING 2" means Permanent Funding (No. 2) PLC (registered number
         4441772), a public limited company incorporated under the laws of
         England and Wales, whose registered office is at Blackwell House,
         Guildhall Yard, London EC2V 5AE;

         "FURTHER ADVANCE" means, in relation to a Loan, any advance of further
         money to the relevant Borrower following the making of the Initial
         Advance which is secured by the same Mortgage as the Initial Advance
         but does not include the amount of any retention advanced to the
         relevant Borrower as part of the Initial Advance after completion of
         the Mortgage and does not include a Flexible Loan Drawing nor a Home
         Cash Reserve Advance;

         "FURTHER FUNDING 1 LIQUIDITY FACILITY" means the committed revolving
         sterling advances facility in respect of the relevant payment
         obligations of Funding 1 arising out of any Intercompany Loan Agreement
         (other than the First Issuer Intercompany Loan Agreement) provided by
         the Funding 1 Liquidity Facility Provider to Funding 1 under the
         Funding 1 Liquidity Facility Agreement;

         "FURTHER FUNDING 1 LIQUIDITY FACILITY COMMITMENT" means the sum of
         Pound Sterling [o] made available in respect of the Further Funding 1
         Liquidity Facility to the extent not cancelled or reduced under the
         Funding 1 Liquidity Facility Agreement;

         "FURTHER FUNDING 1 LIQUIDITY FACILITY DRAWING" means a loan made or to
         be made under the Further Funding 1 Liquidity Facility;

         "FURTHER FUNDING 1 LIQUIDITY FACILITY LOAN" means the aggregate
         principal amount of all Further Funding 1 Liquidity Facility Drawings
         for the time being advanced and outstanding under the Further Funding 1
         Liquidity Facility;

         "FURTHER FUNDING 1 LIQUIDITY REVENUE SHORTFALL" means the amount
         required to meet all and any payments under the Funding 1
         Pre-Enforcement Revenue Priority of Payments relating to all
         Intercompany Loan Agreements (other than the First Issuer Intercompany
         Loan Agreement);

         "FURTHER FUNDING 1 LIQUIDITY PRINCIPAL SHORTFALL" means the amount
         required to meet all and any payments under the Funding 1
         Pre-Enforcement Principal Priority of Payments relating to all
         Intercompany Loan Agreements (other than the First Issuer Intercompany
         Loan Agreement);

         "FURTHER FUNDING 1 LIQUIDITY FACILITY SHORTFALL" means, together, the
         Further Funding 1 Liquidity Facility Revenue Shortfall and the Further
         Funding 1 Liquidity Facility Principal Shortfall;

         "FURTHER FUNDING 1 LIQUIDITY FACILITY STAND-BY DRAWING" means a drawing
         made under the Further Funding 1 Liquidity Stand-by Facility;

         "FURTHER FUNDING 1 LIQUIDITY STAND-BY FACILITY" means the committed
         sterling stand-by facility referred to in CLAUSE 2.1(d) of the Funding
         1 Liquidity Facility Agreement;

<PAGE>
                                       20

         "FURTHER FUNDING 1 LIQUIDITY FACILITY STAND-BY LOAN" means the
         aggregate principal amount of all Further Funding 1 Liquidity Stand-by
         Drawings for the time being advanced and outstanding under the Further
         Funding 1 Liquidity Stand-by Facility;

         "FUTURE TRUST PROPERTY" means any or all New Portfolios to be assigned
         to the Mortgages Trustee on any Assignment Date;

         "HALIFAX" means Halifax plc (registered number 02367076), a public
         limited company incorporated under the laws of England and Wales, whose
         registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG;

         "HALIFAX COLLECTION ACCOUNT AMOUNTS" means all amounts from time to
         time standing to the credit of the Collection Account to the extent
         that such amounts represent payments into the Collection Account of
         sums derived or resulting from mortgage loans originated by Halifax
         which have not been sold to the Mortgages Trustee pursuant to the
         Mortgage Sale Agreement.

         "HALIFAX DEED AND POWER OF ATTORNEY" means the deed and power of
         attorney made by Halifax in favour of Funding 1 and its successors and
         assigns, on the Initial Closing Date, pursuant to the Mortgages Trust
         Deed;

         "HALIFAX INSURANCE POLICIES" means:

         (a)      the MIG Policies;

         (b)      the Properties in Possession Cover;

         (c)      the Freedom of Agency Indemnity Policy;

         (d)      the Halifax Policies; and

         (e)      the Search Indemnity Policy;

         "HALIFAX INTERMEDIARY" means Halifax General Insurance Services Limited
         and/or such other person as may be authorised to issue Buildings
         Policies to Borrowers on behalf of the Halifax Policies Insurer;

         "HALIFAX POLICIES" means those of the Buildings Policies which are
         issued to Borrowers by the Seller and/or a Halifax Intermediary on
         behalf of the Halifax Policies Insurer;

         "HALIFAX POLICIES INSURER" means Royal & Sun Alliance Insurance plc
         and/or any other insurer who agrees with the Seller to issue buildings
         insurance policies to Borrowers from time to time as a consequence of
         an introduction or intermediation by a Halifax Intermediary;

         "HALIFAX VARIABLE BASE RATE" means the standard variable rate of
         interest or if the Seller has more than one standard variable rate of
         interest, the relevant standard variable rate of interest set by the
         Seller which applies to the Variable Rate Loans beneficially owned by
         the Seller on the Seller's residential mortgage book;

         "HIGH LOAN-TO-VALUE FEE" means any fee incurred by a Borrower as a
         result of taking out a loan with an LTV Ratio in excess of a certain
         percentage specified in the Offer Conditions;

         "HOLDING COMPANY" means a holding company within the meaning of Section
         736 of the Companies Act 1985;

<PAGE>
                                       21

         "HOLDINGS" means Permanent Holdings Limited (registered number
         4267664), a limited company incorporated under the laws of England and
         Wales, whose registered office is at Blackwell House, Guildhall Yard,
         London EC2V 5AE;

         "HOME CASH RESERVE ADVANCE" means, in relation to a Loan, an advance of
         further money in a sum of not less than Pound Sterling 25,005 to the
         relevant Borrower following the making of the Initial Advance which is
         secured by the same Mortgage as the Initial Advance and against which
         sum the Borrower can make drawings of not less than Pound Sterling
         1,000 at any time;

         "HOME CASH RESERVE DRAWING" means any drawing of monies made by a
         Borrower under a Home Cash Reserve Advance;

         "HOME IMPROVEMENT LOAN" means a type of Further Advance product that
         can only be used by the Borrower for the purposes of making repairs,
         alterations and/or improvements to the relevant Property;

         "HOMEOWNER LOAN" means a type of Further Advance product that is a
         regulated agreement under section 8 of the Consumer Credit Act 1974 and
         which can be used by the Borrower for any purpose, including but not
         limited to, the purchase of a car;

         "HVR 1" means the Variable Mortgage Rate set by the Seller which
         applies to certain loans beneficially owned by the Seller on the
         Seller's residential mortgage book;

         "HVR 2" means the second Variable Base Rate that was made available to
         Borrowers between 1st March, 2001 and 1st February, 2002;

         "ICTA" means the Income and Corporation Taxes Act 1988;

         "INITIAL ADVANCE" means, in respect of any Loan, the original principal
         amount advanced by the Seller including any retention(s) advanced to
         the relevant Borrower after the date of the Mortgage but excluding any
         (a) High Loan-to-Value Fee, (b) Further Advance, (c) Flexible Loan
         Drawing, (d) Home Cash Reserve Advance and (e) Early Repayment Fee
         relating to any such Loan;

         "INITIAL CLOSING DATE" means 14th June, 2002;

         "INITIAL CLOSING TRUST PROPERTY" means the Initial Portfolio assigned
         by the Seller to the Mortgages Trustee on the Initial Closing Date;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY" means the committed revolving
         sterling advances facility in respect of the relevant payment
         obligations of Funding 1 arising out of the First Issuer Intercompany
         Loan Agreement provided by the Funding 1 Liquidity Facility Provider to
         Funding 1 under the Funding 1 Liquidity Facility Agreement;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY COMMITMENT" means the sum of
         Pound Sterling 60,000,000 made available in respect of the Initial
         Funding 1 Liquidity Facility to the extent not cancelled or reduced
         under the Funding 1 Liquidity Facility Agreement;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY DRAWING" means a loan made or to
         be made under the Initial Funding 1 Liquidity Facility;

<PAGE>
                                       22

         "INITIAL FUNDING 1 LIQUIDITY FACILITY LOAN" means the aggregate
         principal amount of all Initial Funding 1 Liquidity Facility Drawings
         for the time being advanced and outstanding under the Initial Funding 1
         Liquidity Facility;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY SHORTFALL" means, together, the
         Initial Funding 1 Liquidity Facility Revenue Shortfall and the Initial
         Funding 1 Facility Liquidity Principal Shortfall;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY REVENUE SHORTFALL" means the
         amount required to meet all and any payments under the Funding 1
         Pre-Enforcement Revenue Priority of Payments relating to the First
         Issuer Intercompany Loan Agreement;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY PRINCIPAL SHORTFALL" means the
         amount required to meet all and any payments under the Funding 1
         Pre-Enforcement Principal Priority of Payments relating to the First
         Issuer Intercompany Loan Agreement;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY STAND-BY DRAWING" means a drawing
         made under the Initial Funding 1 Liquidity Stand-by Facility;

         "INITIAL FUNDING 1 LIQUIDITY STAND-BY FACILITY" means the committed
         sterling stand-by facility referred to in CLAUSE 2.1(c) of the Funding
         1 Liquidity Facility Agreement;

         "INITIAL FUNDING 1 LIQUIDITY FACILITY STAND-BY LOAN" means the
         aggregate principal amount of all Initial Funding 1 Liquidity Facility
         Stand-by Drawings for the time being advanced and outstanding under the
         Initial Funding 1 Liquidity Stand-by Facility;

         "INITIAL FUNDING 1 SHARE" means the share of Funding 1 in the Trust
         Property on the Initial Closing Date, being an amount equal to Pound
         Sterling 3,500,000,035;

         "INITIAL FUNDING 1 SHARE PERCENTAGE" means the percentage share of
         Funding 1 in the Trust Property on the Initial Closing Date being 35
         per cent.;

         "INITIAL LOANS" means the portfolio of residential first mortgage loans
         assigned by the Seller to the Mortgages Trustee on the Initial Closing
         Date pursuant to the Mortgage Sale Agreement;

         "INITIAL PORTFOLIO" means the Provisional Portfolio other than any Loan
         and its Related Security redeemed in full on or before the Initial
         Closing Date;

         "INITIAL RELATED SECURITY" means the Related Security assigned by the
         Seller to the Mortgages Trustee on the Initial Closing Date pursuant to
         the Mortgage Sale Agreement;

         "INITIAL RELEVANT SCREEN RATE" has the meaning given in Condition 4(C);

         "INITIAL SELLER SHARE" means the share of the Seller in the Trust
         Property on the Initial Closing Date being an amount equal to Pound
         Sterling 6,500,000,065;

         "INITIAL SELLER SHARE PERCENTAGE" means the percentage share of the
         Seller in the Trust Property on the Initial Closing Date being 65 per
         cent.;

         "INITIAL TRUST PROPERTY" means the sum of Pound Sterling 100 (one
         hundred pounds) that SFM Offshore Limited (as the Share Trustee of the
         Mortgages Trustee) settled on trust and held on trust

<PAGE>
                                       23

         absolutely as to both capital and income by the Mortgages Trustee for
         the benefit of the Seller and Funding 1 pursuant to CLAUSE 2.1 of the
         Mortgages Trust Deed;

         "INSOLVENCY EVENT" in respect of the Seller, the Servicer, the Cash
         Manager, the First Issuer Cash Manager or the Second Issuer Cash
         Manager (each, for the purposes of this definition, a "RELEVANT
         ENTITY") means:

         (a)      an order is made or an effective resolution passed for the
                  winding up of the Relevant Entity;

         (b)      the Relevant Entity ceases or threatens to cease to carry on
                  its business or stops payment or threatens to stop payment of
                  its debts or is deemed unable to pay its debts within the
                  meaning of section 123(a), (b), (c) or (d) of the Insolvency
                  Act 1986 (as amended) or becomes unable to pay its debts as
                  they fall due or the value of its assets falls to less than
                  the amounts of its liabilities (taking into account, for both
                  these purposes, contingent and prospective liabilities) or
                  otherwise becomes insolvent; and

         (c)      proceedings (including, but not limited to, presentation of an
                  administration order, the filing of documents with the court
                  for the appointment of an administrator or the service of a
                  notice of intention to appoint an administrator) are initiated
                  against the Relevant Entity under any applicable liquidation,
                  administration, reorganisation (other than a reorganisation
                  where the Relevant Entity is solvent) or other similar laws,
                  save where such proceedings are being contested in good faith;
                  or an administrative or other receiver, administrator or other
                  similar official is appointed in relation to the whole or any
                  substantial part of the undertaking or assets of the Relevant
                  Entity or the appointment of an administrator takes effect; or
                  a distress, execution or diligence or other process is
                  enforced upon the whole or any substantial part of the
                  undertaking or assets of the Relevant Entity and in any of the
                  foregoing cases it is not discharged within fifteen London
                  Business Days; or if the Relevant Entity initiates or consents
                  to judicial proceedings relating to itself under any
                  applicable liquidation, administration, insolvency,
                  reorganisation or other similar laws or makes a conveyance or
                  assignment for the benefit of its creditors generally or takes
                  steps with a view to obtaining a moratorium in respect of any
                  indebtedness;

         "INSURANCE ACKNOWLEDGEMENTS" means a letter from the relevant insurer
         substantially in the form set out in SCHEDULE 11 to the Mortgage Sale
         Agreement or such other form as the relevant insurer shall require in
         respect of (a) the MIG Policies numbers GECM-UK-003 and GECM-UK-004
         issued by GE Mortgage Insurance Limited and (b) the MIG Policies
         numbers 227001, 227001(A), 227002, 227003 and 227006;

         "INSURANCE ENDORSEMENTS" means an endorsement from the relevant insurer
         substantially in the form set out in SCHEDULE 10 to the Mortgage Sale
         Agreement or such other form as the relevant insurer shall require in
         respect of (a) each of the MIG Policies excluding the Halifax Mortgage
         Re Limited MIG Policies, (b) the Freedom of Agency Indemnity Policy,
         (c) the Search Indemnity Policy, (d) Halifax Policies and (e) the
         insurance policy maintained by the Seller in respect of the Title Deeds
         stored by the Seller;

         "INSURANCE POLICIES" means the Buildings Policies and the Halifax
         Insurance Policies and "INSURANCE POLICY" shall be construed
         accordingly;

         "INTERCOMPANY LOAN ACCELERATION NOTICE" means a notice served by the
         Security Trustee on Funding 1 following the occurrence of an
         Intercompany Loan Event of Default, pursuant to CLAUSE 14.10 of the
         Intercompany Loan Terms and Conditions;

<PAGE>
                                       24

         "INTERCOMPANY LOAN AGREEMENTS" means the First Issuer Intercompany Loan
         Agreement, the Second Issuer Intercompany Loan Agreement and any New
         Intercompany Loan Agreement and "INTERCOMPANY LOAN Agreement" means any
         one of them;

         "INTERCOMPANY LOAN CONFIRMATION" means a document substantially in the
         form set out in SCHEDULE 3 to the Intercompany Loan Terms and
         Conditions confirming the principal terms of each Intercompany Loan
         Agreement between Funding 1 and the relevant Issuer;

         "INTERCOMPANY LOAN DETERMINATION DATE" means the first day of the
         relevant Interest Period;

         "INTERCOMPANY LOAN EVENTS OF DEFAULT" means the occurrence of an event
         of default as specified in CLAUSE 14 of the Intercompany Loan Terms and
         Conditions;

         "INTERCOMPANY LOAN LEDGER" means a ledger maintained by the Cash
         Manager to record payments of interest and repayments of principal made
         on each of the current Term Advances and any New Term Advances under
         any Intercompany Loans;

         "INTERCOMPANY LOAN TERMS AND CONDITIONS" means the standard terms and
         conditions incorporated into each Intercompany Loan Agreement, signed
         for the purposes of identification on or about the Initial Closing Date
         by Funding 1, the Security Trustee and the Agent Bank;

         "INTERCOMPANY LOANS" means the First Issuer Intercompany Loan, the
         Second Issuer Intercompany Loan and any New Intercompany Loan;

         "INTEREST PERIOD" means the period from (and including) a Funding 1
         Interest Payment Date (or in respect of the first Interest Period, the
         relevant Closing Date) to (but excluding) the next following (or first)
         Funding 1 Interest Payment Date;

         "IRRECOVERABLE VAT" means any amount in respect of VAT incurred by a
         party to the Transaction Documents (for the purposes of this
         definition, a "RELEVANT PARTY") as part of a payment in respect of
         which it is entitled to be indemnified under the relevant Transaction
         Documents to the extent that the Relevant Party does not or will not
         receive and retain a credit or repayment of such VAT as input tax (as
         that expression is defined in section 24(1) of the Value Added Tax Act
         1994) for the prescribed accounting period (as that expression is used
         in section 25(1) of the Value Added Tax Act 1994) to which such input
         tax relates;

         "ISSUER" means the First Issuer, the Second Issuer or, as the context
         may require, any New Issuer;

         "ISSUER ACCOUNT BANK" means the First Issuer Account Bank, the Second
         Issuer Account Bank and/or, as the context requires, the bank at which
         the accounts of any New Issuer are maintained;

         "ISSUER ACCOUNTS" means any of the First Issuer Accounts, the Second
         Issuer Accounts or, as the context may require, any accounts held by
         any New Issuer;

         "ISSUER AGREEMENTS" means those agreements to which any Issuer is party
         (including, for the avoidance of doubt, the First Issuer Transaction
         Documents and the Second Issuer Transaction Documents);

<PAGE>
                                       25

         "ISSUER MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE" means, as the
         context so requires, the First Issuer Master Definitions and
         Construction Schedule dated the Initial Closing Date, the Second Issuer
         Master Definitions and Construction Schedule dated on or about the
         Second Issuer Closing Date, each signed for the purposes of
         identification by Allen & Overy and Sidley Austin Brown & Wood, and/or
         each other master definitions and construction schedule related to a
         New Issuer;

         "ISSUER NOTES" includes all of the Class A First Issuer Notes, the
         Class B First Issuer Notes, Class C First Issuer Notes, the Class A
         Second Issuer Notes, the Class B Second Issuer Notes, the Class C
         Second Issuer Notes and, as the context may require, any New Notes;

         "ISSUER SECURITY" means security created by the First Issuer pursuant
         to the First Issuer Deed of Charge in favour of the First Issuer
         Secured Creditors, security created by the Second Issuer pursuant to
         the Second Issuer Deed of Charge in favour of the Second Issuer Secured
         Creditors and/or, as the context may require, security created by any
         New Issuers;

         "ISSUER SWAP EXCLUDED TERMINATION AMOUNT" means, in relation to a swap
         agreement entered into by an Issuer, an amount equal to:

         (a)      the amount of any termination payment due and payable to the
                  relevant swap provider as a result of the occurrence of an
                  Event of Default (as defined in the relevant swap agreement)
                  in respect of that swap provider or to the relevant swap
                  provider following an Issuer Swap Provider Downgrade
                  Termination Event;

         less

         (b)      the amount, if any, received by the Issuer from a replacement
                  swap provider upon entry by the Issuer into an agreement with
                  such replacement swap provider to replace such swap agreement
                  which has terminated as a result of the occurrence of an Event
                  of Default (as defined in the relevant swap agreement) in
                  respect of that swap provider or following the occurrence of
                  such Issuer Swap Provider Downgrade Termination Event

         References in the Transaction Documents to an Issuer Swap Excluded
         Termination Amount in the context of any relevant Issuer will be
         preceded by the words by which that Issuer is known so, for example, an
         Issuer Swap Excluded Termination Amount arising in respect of the First
         Issuer will be referred to as a "FIRST ISSUER SWAP EXCLUDED TERMINATION
         AMOUNT";

         "ISSUER SWAP PROVIDER DOWNGRADE TERMINATION EVENT" means the occurrence
         of an additional termination event following the failure by a swap
         provider under a swap agreement entered into with an Issuer to comply
         with the requirements of the ratings downgrade provisions set out in
         the relevant swap agreement. Where applicable, references in the
         Transaction Documents to an Issuer Swap Provider Downgrade Termination
         Event in the context of a relevant Issuer will be preceded by the words
         by which that Issuer is known so, for example, the occurrence of an
         Issuer Swap Provider Downgrade Termination Event in respect of swap
         provider under a swap agreement entered into with the Second Issuer
         will be referred to as a "SECOND ISSUER SWAP PROVIDER DOWNGRADE
         TERMINATION EVENT";

         "LARGE LOAN DISCOUNT" means the discount which allows a Borrower to pay
         interest at a discretionary discount to the standard variable rate of
         interest charged on Variable Rate Loans in, or to be included in, the
         Mortgages Trust (other than the Tracker Rate Loans) based on the
         aggregate size of the Loans under the Mortgage Account (i) at
         origination or (ii) when a Further Advance is made;
<PAGE>
                                       26

         "LAW" includes common or customary law and any constitution, decree,
         judgment, legislation, order, ordinance, regulation, statute, treaty or
         other legislative measure in any jurisdiction and any present or future
         directive, regulation, guideline, practice, concession, request or
         requirement whether or not having the force of law issued by any
         governmental body, agency or department or any central bank or other
         fiscal, monetary, taxation, regulatory, self regulatory or other
         authority or agency;

         "LENDING CRITERIA" means the criteria contained in SCHEDULE 4 to the
         Mortgage Sale Agreement or such other criteria as would be acceptable
         to a reasonable, prudent mortgage lender;

         "LIBOR" means:

         (a)  in relation to any Funding 1 Liquidity Facility Drawing or, as
              the case may be, Funding 1 Liquidity Facility Stand-by Drawing:

              (i)  the display rate per annum of the offered quotation for
                   deposits in the currency of the relevant Funding 1 Liquidity
                   Drawing or unpaid sum for a period equal to the required
                   period which appears on Moneyline Telerate Page 3750 or
                   Moneyline Telerate Page 3740 (as appropriate) at or about
                   11.00 a.m. on the relevant Quotation Date; or

              (ii) if the display rate cannot be determined under paragraph (a)
                   above, the rate determined by the Funding 1 Liquidity
                   Facility Provider to be the arithmetic mean (rounded, if
                   necessary, to the nearest five decimal places with the
                   midpoint rounded upwards) of the rates notified to the
                   Liquidity Facility Provider by each of the Reference Banks
                   quoting (provided that at least two Reference Banks are
                   quoting) as the rate at which such Reference Bank is
                   offering deposits in the required currency and for the
                   required period in an amount comparable to that amount to
                   prime banks in the London inter-bank market at or about
                   11.00 a.m. on the relevant Quotation Date for such period;

              for the purposes of this definition:

                   "QUOTATION DATE" means, in relation to any Interest Period
                   for which an interest rate is to be determined under the
                   Funding 1 Liquidity Facility Agreement, the day on which
                   quotations would ordinarily be given by banks in the London
                   inter-bank market for deposits in the relevant currency for
                   delivery on the first day of that Interest Period; provided
                   that if, for any such period, quotations would ordinarily be
                   given on more than one date, the Quotation Date for that
                   period shall be the last of those dates;

                   "REFERENCE BANKS" means the principal London office of each
                   of ABN AMRO Bank N.V., Barclays Bank PLC, Citibank, N.A. and
                   the Royal Bank of Scotland plc or any bank that replaces any
                   of them; and

                   "MONEYLINE TELERATE PAGE 3750" means the display designated
                   as Page 3750; and "MONEYLINE TELERATE PAGE 3740" means the
                   display designated as Page 3740, in each case on the
                   Moneyline Telerate Service (or such other pages as may
                   replace Page 3750 or Page 3740 on that service or such other
                   service as may be nominated by the British Bankers'
                   Association (including the Reuters Screen) as the
                   information vendor for the purposes of displaying

<PAGE>
                                       27

                   British Bankers' Association Interest Settlement Rates for
                   deposits in the currency concerned);

         (b)  in relation to the Mortgages Trustee GIC Rate, the Funding 1 GIC
              Rate and the rate of interest payable on the Start-up Loans,
              LIBOR as determined in accordance with the Intercompany Loan
              Agreements;

         "LOAN" means each loan referenced by its loan identifier number and
         comprising the aggregate of all principal sums, interest, costs,
         charges, expenses and other monies (including all further advances) due
         or owing with respect to that loan under the relevant Mortgage Terms by
         a Borrower on the security of a Mortgage from time to time outstanding
         or, as the context may require, the Borrower's obligations in respect
         of the same;

         "LOAN REPURCHASE NOTICE" means a notice in the form set out in SCHEDULE
         6 to the Mortgage Sale Agreement;

         "LOAN WARRANTIES" means the Representations and Warranties;

         "LONDON BUSINESS DAY" means a day (other than a Saturday or Sunday) on
         which banks are generally open for business (including dealings in
         foreign currency) in London;

         "LONDON STOCK EXCHANGE" means the London Stock Exchange plc;

         "LOSS AMOUNT" means the amount of any costs, expenses, losses or other
         claims suffered or incurred by, as applicable, the Mortgages Trustee
         and/or Funding 1 in connection with any recovery of interest on the
         Loans to which the Seller, the Mortgages Trustee or Funding 1 was not
         entitled or could not enforce as a result of any of the matters
         referred to in paragraphs (a), (b), (c) or (d) of Clause 7.3 of the
         Mortgage Sale Agreement;

         "LOSSES" means all realised losses on the Loans;

         "LOSSES LEDGER" means the ledger of such name maintained by the Cash
         Manager pursuant to the Cash Management Agreement to record the Losses;

         "LTV RATIO" or "LOAN-TO-VALUE RATIO" means the ratio (expressed as a
         percentage) of the outstanding balance of a Loan to the value of the
         mortgaged Property securing that Loan;

         "LTV TEST" means a test which assigns a credit enhancement value to
         each loan in the portfolio based on its current loan-to-value ratio and
         the amount of mortgage indemnity cover on that loan. The weighted
         average credit enhancement value for the portfolio is then determined;

         "MANDATE" means the Funding 1 Transaction Account Mandate, the Funding
         1 GIC Account Mandate and/or the Mortgages Trustee GIC Account Mandate,
         as the case may be;

         "MANDATORY LIQUID ASSET COST" means the cost imputed to the Funding 1
         Liquidity Facility Provider of compliance with:

         (a)  cash and special deposit requirements of the Bank of England
              and/or the banking supervision or other costs imposed by the
              Financial Services Authority, as determined in accordance with
              SCHEDULE 2 of the Funding 1 Liquidity Facility Agreement; and

         (b)  any reserve asset requirements of the European Central Bank;

<PAGE>
                                       28

         "MASTER DEFINITIONS SCHEDULE" or "MASTER DEFINITIONS AND CONSTRUCTION
         SCHEDULE" or "AMENDED AND RESTATED MASTER DEFINITIONS AND CONSTRUCTION
         SCHEDULE" means this Amended and Restated Master Definitions and
         Construction Schedule signed for the purposes of identification by
         Allen & Overy and Sidley Austin Brown & Wood on [5th March], 2003, as
         the same may be further amended, restated and supplemented from time to
         time;

         "MIG POLICIES" means the mortgage indemnity guarantee policies written
         by General Accident Fire and Life Assurance Corporation PLC, GE Capital
         Mortgage (UK) Limited, Royal & Sun Alliance Insurance Plc and Halifax
         Mortgage Re Limited in favour of the Seller, or any other mortgage
         indemnity guarantee policy as may be effected from time to time to
         cover the Seller in respect of New Loans and their Related Security,
         such other mortgage indemnity guarantee policy to provide such level of
         cover as would be acceptable to a reasonable, prudent mortgage lender
         at the date of such other policy;

         "MINIMUM SELLER SHARE" means an amount included in the Current Seller
         Share which is calculated in accordance with CLAUSE 9.2 of the
         Mortgages Trust Deed and which, as at the Second Issuer Closing Date,
         was Pound Sterling[900,000,000];

         "MONTHLY CPR" on any Normal Calculation Date means the total Principal
         Receipts received during the period of one month (or, if shorter, from
         and including the Initial Closing Date) ending on that Normal
         Calculation Date divided by the aggregate Outstanding Principal Balance
         of the Loans comprised in the Trust Property as at the immediately
         preceding Normal Calculation Date;

         "MONTHLY PAYMENT" means the amount which the relevant Mortgage Terms
         require a Borrower to pay on each Monthly Payment Day in respect of
         that Borrower's Loan;

         "MONTHLY PAYMENT DAY" means the date on which interest (and principal
         in relation to a repayment mortgage) is due to be paid by a Borrower on
         a Loan or, if any such day is not a business day, the next following
         business day;

         "MOODY'S" means Moody's Investors Service Limited and includes any
         successor to its rating business;

         "MORTGAGE ACCOUNT" means all Loans secured on the same Property and
         thereby forming a single mortgage account;

         "MORTGAGE CONDITIONS" or "LOAN CONDITIONS" means the terms and
         conditions applicable to a Loan as contained in the Seller's "Mortgage
         Conditions" booklet applicable from time to time;

         "MORTGAGE SALE AGREEMENT" means the mortgage sale agreement dated 14th
         June, 2002 and made between the Seller, Funding 1, the Mortgages
         Trustee and the Security Trustee in relation to the assignment of the
         Initial Portfolio and any New Portfolios to the Mortgages Trustee, as
         amended and restated on or about the Second Issuer Closing Date and as
         further amended and/or restated or varied from time to time;

         "MORTGAGE TERMS" means all the terms and conditions applicable to a
         Loan, including without limitation the applicable Mortgage Conditions
         and Offer Conditions;

         "MORTGAGEE" means the person for the time being entitled to exercise
         the rights of the mortgagee under a Mortgage;

<PAGE>
                                       29

         "MORTGAGES" means the residential first mortgages, assigned by the
         Seller to the Mortgages Trustee pursuant to the Mortgage Sale
         Agreement, which secure the repayment of the Loan and "Mortgage" means
         any one of them;

         "MORTGAGES TRUST" means the trust of the Trust Property as to both
         capital and income, including the Initial Trust Property, held by the
         Mortgages Trustee on trust absolutely for Funding 1 (as to the Funding
         1 Share) and the Seller (as to the Seller Share) pursuant to the
         Mortgages Trust Deed;

         "MORTGAGES TRUST AVAILABLE PRINCIPAL RECEIPTS" means the Principal
         Receipts available to the Mortgages Trustee to distribute in accordance
         with CLAUSE 11 of the Mortgages Trust Deed;

         "MORTGAGES TRUST AVAILABLE REVENUE RECEIPTS" means an amount equal to
         the aggregate of the following amounts, as calculated on each
         Calculation Date:

         (i)  Revenue Receipts on the Loans (but excluding Principal Receipts);
              and

         (ii) interest payable to the Mortgages Trustee on the Mortgages
              Trustee GIC Account;

         less Third Party Amounts;

         which amounts may be paid daily from monies on deposit in the Mortgages
         Trustee GIC Account;

         "MORTGAGES TRUST DEED" means the mortgages trust deed made between the
         Mortgages Trustee, Funding 1, the Seller and SFM Offshore Limited on
         13th June, 2002, as amended and restated on or about the Second Issuer
         Closing Date and as further amended and/or restated or varied from time
         to time;

         "MORTGAGES TRUST PRINCIPAL PRIORITY OF PAYMENTS" means the order in
         which the Cash Manager applies Principal Receipts on the Loans on each
         Distribution Date to each of Funding 1 and the Seller, depending on
         whether a Trigger Event has occurred, as set out in CLAUSE 11 of the
         Mortgages Trust Deed;

         "MORTGAGES TRUST REVENUE PRIORITY OF PAYMENTS" means the order in which
         the Cash Manager applies the Mortgages Trust Available Revenue Receipts
         on each Distribution Date, as set out in CLAUSE 10 of the Mortgages
         Trust Deed;

         "MORTGAGES TRUSTEE" means Permanent Mortgages Trustee Limited
         (registered number 83116), a private company with limited liability
         incorporated in Jersey, Channel Island, whose registered office is at
         47 Esplanade, St. Helier, Jersey JE1 0BD, Channel Islands;

         "MORTGAGES TRUSTEE COLLECTION ACCOUNT AMOUNTS" means all amounts from
         time to time standing to the credit of the Collection Account to the
         extent that such amounts represent payments into the Collection Account
         of sums derived or resulting from mortgage loans originated by Halifax
         which have been sold to the Mortgages Trustee pursuant to the Mortgage
         Sale Agreement;

         "MORTGAGES TRUSTEE CORPORATE SERVICES AGREEMENT" means the agreement
         dated the Initial Closing Date and made between the Mortgages Trustee
         Corporate Services Provider, the Mortgages Trustee and the Security
         Trustee for the provision by the Mortgages Trustee

<PAGE>
                                       30

         Corporate Services Provider of certain corporate services and personnel
         to the Mortgages Trustee;

         "MORTGAGES TRUSTEE CORPORATE SERVICES FEE LETTER" means the letter
         dated the date of the Mortgages Trustee Corporate Services Agreement
         between the Mortgages Trustee, the Mortgages Trustee Corporate Services
         Provider and the Security Trustee, setting out the amount of fees
         payable to the Mortgages Trustee Corporate Services Provider by the
         Mortgages Trustee;

         "MORTGAGES TRUSTEE CORPORATE SERVICES PROVIDER" means SFM Offshore
         Limited or such other person or persons for the time being acting as
         corporate services provider to the Mortgages Trustee under the
         Mortgages Trustee Corporate Services Agreement;

         "MORTGAGES TRUSTEE GIC ACCOUNT" means the account in the name of the
         Mortgages Trustee (sort code 12-08-83, account number o) maintained
         with the Account Bank pursuant to the Bank Account Agreement and the
         Mortgages Trustee Guaranteed Investment Contract, or such additional or
         replacement bank account of the Mortgages Trustee as may for the time
         being be in place with the prior consent of the Security Trustee which
         is subject to a Guaranteed Investment Contract;"MORTGAGES TRUSTEE GIC
         ACCOUNT AGREEMENT" has the same meaning as "MORTGAGES TRUSTEE
         GUARANTEED INVESTMENT CONTRACT";

         "MORTGAGES TRUSTEE GIC ACCOUNT MANDATE" means the bank account mandate
         between the Mortgages Trustee and the Account Bank relating to the
         operation of the Mortgages Trustee GIC Account;

         "MORTGAGES TRUSTEE GIC BALANCE" means, on any day during an Interest
         Period, the amount standing to the credit of the Mortgages Trustee GIC
         Account as at the opening of business on such day;

         "MORTGAGES TRUSTEE GIC PROVIDER" means The Governor and Company of the
         Bank of Scotland acting pursuant to the Mortgages Trustee Guaranteed
         Investment Contract or its successor or assignee and any provider of a
         replacement Mortgages Trustee GIC Account;

         "MORTGAGES TRUSTEE GIC RATE" means the rate of interest accruing on the
         balance standing to the credit of the Mortgages Trustee GIC Account
         equal to a rate of three month LIBOR less 0.25 per cent. per annum;

         "MORTGAGES TRUSTEE GUARANTEED INVESTMENT CONTRACT" or "MORTGAGES
         TRUSTEE GIC ACCOUNT AGREEMENT" means the guaranteed investment contract
         entered into on the Initial Closing Date between the Mortgages Trustee,
         the Mortgages Trustee GIC Provider, the Cash Manager and the Security
         Trustee in relation to interest to be earned on the Mortgages Trustee
         GIC Balance (as the same may be amended and/or supplemented from time
         to time);

         "MORTGAGES TRUSTEE LEDGERS" means the Principal Ledger, the Revenue
         Ledger, the Losses Ledger and the Funding 1 Share/Seller Share Ledger;

         MORTGAGES TRUSTEE TRACKER RATE" means the rate of interest (before
         applying any cap or minimum rate) which is set by the Servicer from
         time to time in respect of Tracker Rate Loans pursuant to CLAUSE 4.1 of
         the Servicing Agreement;

         "MORTGAGES TRUSTEE VARIABLE BASE RATE" means the variable base rates
         which apply to the Variable Rate Loans in the Portfolio as set, other
         than in limited circumstances, by the Servicer, as set out in CLAUSE
         4.1 of the Servicing Agreement;

<PAGE>
                                       31

         "NEW BULLET TERM ADVANCE" means any term advance made under a New
         Intercompany Loan Agreement where the full amount of principal on such
         term advance is scheduled for repayment on a single interest payment
         date (other than the final repayment date);

         "NEW FUNDING 1 SECURED CREDITOR" means such other creditor of Funding 1
         who accedes to the Funding 1 Deed of Charge from time to time including
         pursuant to an Accession Undertaking;

         "NEW FUNDING 1 SWAP" means a new swap under the existing Funding 1 Swap
         Agreement;

         "NEW INTERCOMPANY LOAN" means a loan of the proceeds of any issue of
         New Notes, such loan being advanced to Funding 1 by a New Issuer
         pursuant to the terms of a New Intercompany Loan Agreement;

         "NEW INTERCOMPANY LOAN AGREEMENT" means a new intercompany loan
         agreement entered into between Funding 1 and a New Issuer in relation
         to a New Intercompany Loan;

         "NEW INTERCOMPANY LOAN CONFIRMATION" means a new Intercompany Loan
         Confirmation confirming the terms of the New Intercompany Loan
         Agreement;

         "NEW ISSUER" means a new wholly owned subsidiary of Holdings, which is
         established to issue New Notes and to make a New Intercompany Loan to
         Funding 1;

         "NEW ISSUER CLOSING DATE" means the date of any new issue of New Notes
         by a New Issuer;

         "NEW LIQUIDITY FACILITY PROVIDER" means a new liquidity facility
         provider to Funding 1 and/or, as the context may require, to the
         Issuer(s);

         "NEW LOANS" means Loans, other than the Initial Loans, which the Seller
         may assign, to the Mortgages Trustee after the Initial Closing Date
         pursuant to the Mortgage Sale Agreement;

         "NEW LOAN TYPE" means on any date a type of Loan:

         (a)  which has one or more features (including, without limitation,
              relating to the applicable lending criteria used to originate
              such type of Loan, the purpose of such type of Loan, the manner
              of calculating interest or fixing the interest rate in relation
              to such type of Loan and/or the terms for repayment of principal
              in relation to such type of Loan) which mean that such type of
              Loan is generally regarded as a distinct category of mortgage
              loan within the UK mortgage industry and/or by one of more of the
              Rating Agencies; and

         (b)  where no such type of Loan is at that date, or has previously
              been, comprised in the Mortgages Trust,

         (and such types include Flexible Loans, HomeOwner Loans, Deedstore
         Loans, capped rate loans, buy-to-let loans, right-to-buy loans, limited
         recourse loans, equity release loans and drawdown loans as at the
         Initial Closing Date);

         "NEW NOTES" means the notes issued and/or to be issued by the New
         Issuers to investors;

         "NEW PORTFOLIO" means in each case the portfolio of Loans and their
         Related Security (other than any Loans and their Related Security which
         have been redeemed in full prior to the Assignment Date or which do not
         otherwise comply with the terms of CLAUSE 4 of the

<PAGE>
                                       32

         Mortgage Sale Agreement as at the Assignment Date), particulars of
         which are set out in the relevant New Portfolio Notice or in a document
         stored upon electronic media (including, but not limited to, a CD-ROM),
         and all right, title, interest and benefit of the Seller in and to:

         (a)  all payments of principal and interest (including, for the
              avoidance of doubt, all Accrued Interest, Arrears of Interest,
              Capitalised Expenses and Capitalised Arrears) and other sums due
              or to become due in respect of such Loans and their Related
              Security including, without limitation, the right to demand, sue
              for, recover and give receipts for all principal monies, interest
              and costs and the right to sue on all covenants made or expressed
              to be made in favour of the Seller under the applicable Mortgage
              Terms;

         (b)  subject where applicable to the subsisting rights of redemption
              of Borrowers, all Deeds of Consent, Deeds of Postponement or any
              collateral security for the repayment of the relevant New Loans
              secured by the relevant New Mortgages;

         (c)  the right to exercise all the powers of the Seller in relation
              thereto;

         (d)  all the estate and interest in the relevant Properties vested in
              the Seller;

         (e)  each relevant Certificate of Title and Valuation Report and any
              right of action of the Seller against any solicitor, valuer or
              other person in connection with any report, valuation, opinion,
              certificate or other statement of fact or opinion given in
              connection with such Loans and their Related Security, or any
              part thereof or affecting the decision of the Seller to make or
              offer to make any such Loan or part thereof;

         (f)  all rights, titles and interests of the Seller (including,
              without limitation, the proceeds of all claims) to which the
              Seller is entitled under the Buildings Policies and the
              Properties in Possession Cover; and

         (g)  the MIG Policies, so far as they relate to the New Loans
              comprised in the relevant portfolio of Loans and their Related
              Security, including the right to receive the proceeds of any
              claims;

         "NEW PORTFOLIO NOTICE" means a notice in the form set out in SCHEDULE
         12 to the Mortgage Sale Agreement served in accordance with the terms
         of the Mortgage Sale Agreement;

         "NEW RELATED SECURITY" means the Related Security for the New Loans
         (including any Mortgages) as assigned to the Mortgages Trustee by the
         Seller;

         "NEW SCHEDULED AMORTISATION TERM ADVANCE" means any Term Advance made
         under a New Intercompany Loan Agreement which is referred to as a
         Scheduled Amortisation Term Advance in the offering document or
         prospectus relating to any relevant New Issuer;

         "NEW START-UP LOAN" means a loan issued to Funding 1 under a New
         Start-up Loan Agreement;

         "NEW START-UP LOAN AGREEMENT" means a loan agreement under which the
         Start-up Loan Provider or a New Start-up Loan Provider shall provide
         Funding 1 with a New Start-up Loan for the purposes of meeting the
         costs of the New Issue and/or further funding the Reserve Fund, if
         required;

<PAGE>
                                       33

         "NEW START-UP LOAN PROVIDER" means an entity who shall supply a New
         Start-up Loan to Funding 1;

         "NEW TERM ADVANCE" means an advance of funds by a New Issuer to Funding
         1 under the terms of a New Intercompany Loan Agreement, which advance
         is funded by a corresponding class of New Notes;

         "NEW YORK BUSINESS DAY" means a day (other than a Saturday or a Sunday)
         on which banks are generally open for business (including dealings in
         foreign currency) in the city of New York;

         "NORMAL CALCULATION DATE" means the first day (or, if not a London
         Business Day, the next succeeding London Business Day) of each month;

         "NON-ASSET TRIGGER EVENT" means the occurrence of any of the following
         events on a Calculation Date:

         (a)  an Insolvency Event in relation to the Seller on or about that
              Calculation Date;

         (b)  the role of the Seller as Servicer under the Servicing Agreement
              is terminated and a new Servicer is not appointed within 60 days;

         (c)  as at the Calculation Date immediately preceding that Calculation
              Date the Current Seller Share is equal to or less than the
              Minimum Seller Share; or

         (d)  on any Calculation Date, the Outstanding Principal Balance of
              Loans comprising the Trust Property at that date during the
              period from and including the Second Issuer Closing Date to but
              excluding the Interest Payment Date in December 2007 is less than
              Pound Sterling 15,750,000,000;

         "NOTE ACCELERATION NOTICE" means a First Issuer Note Acceleration
         Notice, a Second Issuer Note Acceleration Notice or such other
         acceleration notice served in relation to the Notes (other than the
         First Issuer Notes or the Second Issuer Notes) pursuant to the relevant
         terms and conditions thereof;

         "NOTE DETERMINATION DATE" means two Business Days prior to each Funding
         1 Interest Payment Date;

         "NOTE EVENT OF DEFAULT" means the occurrence of an event of default by
         the relevant Issuer as specified in the relevant Conditions of the
         Notes (including a First Issuer Note Event of Default and a Second
         Issuer Note Event of Default);

         "NOTES" means the First Issuer Notes, the Second Issuer Notes and/or as
         the context may require, any New Notes;

         "NOTE TRUSTEE" means, as the context requires,

         (a)  in relation to the First Issuer and the First Issuer Trust Deed
              each of U.S. Bank National Association at 1 Federal Street, 3rd
              Floor, Boston, Massachusetts 02110 and State Street Bank and
              Trust Company at 225 Franklin Street, Boston, Massachusetts
              02110, each acting as co-trustee in their capacity as Note
              Trustee under the terms of the First Issuer Trust Deed or such
              other person as may from time to time be appointed as Note
              Trustee (or co-trustee) pursuant to the First Issuer Trust Deed;

<PAGE>
                                       34

         (b)  in relation to the Second Issuer and the Second Issuer Trust
              Deed, U.S. Bank National Association at 1 Federal Street, 3rd
              Floor, Boston, Massachusetts 02110 acting as Note Trustee under
              the terms of the Second Issuer Trust Deed or such other person as
              may from time to time be appointed as Note Trustee (or
              co-trustee) pursuant to the Second Issuer Trust Deed;

         "NOVATION CERTIFICATE" means a certificate to effect a novation of the
         Funding 1 Liquidity Facility under the Funding 1 Liquidity Facility
         Agreement, substantially in the form set out in SCHEDULE 4 to the
         Funding 1 Liquidity Facility Agreement;

         "OFFER CONDITIONS" means the terms and conditions applicable to a
         specified Loan as set out in the relevant offer letter to the Borrower;

         "ORIGINAL BULLET TERM ADVANCE" means a Term Advance which at any time
         has been a Bullet Term Advance (even if such Term Advance has
         subsequently become a Pass-Through Term Advance);

         "ORIGINAL PASS-THROUGH TERM ADVANCE" means a Term Advance which, at the
         time it was advanced, was a Pass-Through Term Advance;

         "ORIGINAL SCHEDULED AMORTISATION INSTALMENT" means that part of a Term
         Advance which at any time has been a Scheduled Amortisation Instalment
         (even if such Term Advance has subsequently become a Pass-Through Term
         Advance);

         "ORIGINAL SCHEDULED AMORTISATION TERM ADVANCE" means a Term Advance
         which at any time has been a Scheduled Amortisation Term Advance (even
         if such Term Advance has subsequently become a Pass-Through Term
         Advance);

         "OUTSTANDING PRINCIPAL BALANCE":

         (a)  in relation to a Loan at any date (the "DETERMINATION DATE"),
              means the aggregate principal balance of the Loan at such date
              (but avoiding double counting) including:

              (i)   the Initial Advance;

              (ii)  Capitalised Expenses;

              (iii) Capitalised Arrears; and

              (iv)  in increase in the principal amount due under that Loan due
                    to the Borrower making Flexible Drawings and/or taking
                    Payment Holidays or making Underpayments,

              in each case relating to such Loan less any prepayment, repayment
              or payment of the foregoing made on or prior to the determination
              date; and

         (b)  in relation to the Intercompany Loan, means the unpaid principal
              balance of that Intercompany Loan (including any capitalised
              arrears) or, as the context so requires, of a Term Advance made
              under that Intercompany Loan;

         "OVERPAYMENT" means a payment by a Borrower in an amount greater than
         the Monthly Payment then due on the Loan;

<PAGE>
                                       35

         "PASS-THROUGH REPAYMENT RESTRICTIONS" means, at any time on a Funding 1
         Interest Payment Date, no amount may be applied in repayment of any
         Original Pass-Through Term Advance unless:

         (a)  the sum of the Cash Accumulation Ledger Amount and the amount of
              Funding 1 Available Principal Receipts after the application of
              items (a) and (b) and before item (c) of the Funding 1
              Pre-Enforcement Principal Priority of Payments,
              is greater than or equal to

         (b)  the sum of the Cash Accumulation Liability and the aggregate
              amount of all Original Pass-Through Term Advances which are due
              and payable as at that time;

         "PASS-THROUGH TERM ADVANCE" means a Term Advance which has no Scheduled
         Repayment Date(s) other than a Final Repayment Date; or if a Trigger
         Event occurs or, the relevant Issuer Security and/or Funding 1 Security
         is enforced, the Bullet Term Advance or the Scheduled Amortisation Term
         Advance will be deemed to be a Pass-Through Term Advance;

         "PAYABLE PASS-THROUGH TERM ADVANCES" in relation to the Intercompany
         Loan has the meaning given in PART II of SCHEDULE 3 to the Funding 1
         Deed of Charge;

         "PAYMENT HOLIDAY" means the period of time that a Borrower under a Loan
         refrains from making payments of interest and principal on his Loan as
         expressly permitted by the terms of the Borrower's Loan;

         "PERFECTION" means the perfection of certain matters relating to the
         sale and purchase of the Portfolio as contemplated in, pursuant to and
         in accordance with CLAUSE 6 of the Mortgage Sale Agreement;

         "PORTFOLIO" means the Initial Portfolio and any New Portfolio (other
         than any Loan and its Related Security which has been redeemed in full
         or repurchased by the Seller pursuant to CLAUSE 8 of the Mortgage Sale
         Agreement);

         "POST-ENFORCEMENT CALL OPTION HOLDER" means Permanent PECOH Limited
         (registered number 4267666), a limited company incorporated under the
         laws of England and Wales, whose registered office is at Blackwell
         House, Guildhall Yard, London EC2V 5AE;

         "POTENTIAL INTERCOMPANY LOAN EVENT OF DEFAULT" means the occurrence of
         any event which with the giving of notice, any relevant certificate,
         the lapse of time or fulfilment of any other condition (or any
         combination of the foregoing) would become an Intercompany Loan Event
         of Default;

         "POTENTIAL NOTE EVENT OF DEFAULT" means the occurrence of an event
         which with the giving of notice, any relevant certificate, the lapse of
         time or fulfilment of any other conditions (or any combination of the
         foregoing), would become a Note Event of Default;

         "PRINCIPAL DEFICIENCY" means any losses arising in relation to a Loan
         in the Portfolio which causes a shortfall in the amount available to
         pay principal on the Term Advances;

         "PRINCIPAL DEFICIENCY LEDGER" means the ledger of such name maintained
         by the Cash Manager pursuant to the Cash Management Agreement,
         comprising, as at the Initial Issue Date, three sub-ledgers, the AAA
         Principal Deficiency Sub-Ledger, the AA Principal

<PAGE>
                                       36

         Deficiency Sub-Ledger and the BBB Principal Deficiency Sub-Ledger, but
         which may comprise additional sub ledgers as required;

         "PRINCIPAL DEFICIENCY SUB-LEDGER" means singly or together (as the
         context requires) the AAA Principal Deficiency Sub-Ledger, the AA
         Principal Deficiency Sub-Ledger, the BBB Principal Deficiency
         Sub-Ledger and/or such additional principal deficiency sub ledgers that
         may be established from time to time after the Initial Closing Date;

         "PRINCIPAL ISSUERS" has the meaning given in CLAUSE 5.4 of the Funding
         1 Deed of Charge;

         "PRINCIPAL LEDGER" means the ledger of such name maintained by the Cash
         Manager, pursuant to the Cash Management Agreement and CLAUSE 14 of the
         Mortgages Trust Deed to record the Principal Receipts on the Loans and
         distributions of such Principal Receipts to the Beneficiaries;

         "PRINCIPAL PAYMENT RATE" or "PPR means the average monthly rolling
         principal payment rate on the Loans for the 12 months immediately
         preceding the relevant Distribution Date calculated on each such date
         by:

         (a)  dividing (i) the aggregate Principal Receipts received in
              relation to the Loans during the immediately preceding month on
              such calculation date by (ii) the aggregate Outstanding Principal
              Balance of the Loans or the previous calculation date;

         (b)  aggregating the result of the calculation in (a) above with the
              results of the equivalent calculation made on each of the eleven
              most recent calculation dates during the relevant 12 month
              period; and

         (c)  dividing the result of the calculation in (b) above by 12;

         "PRINCIPAL RECEIPTS" means any payment in respect of principal received
         in respect of any Loan (including payments pursuant to any Insurance
         Policies), whether as all or part of a Monthly Payment in respect of
         such Loan, on redemption (including partial redemption) of such Loan,
         on enforcement of such Loan (including the proceeds of sale of the
         relevant Property) or on the disposal of such Loan plus on any Monthly
         Payment Date an amount equal to the amount (if any) by which arrears in
         respect of the Loans comprised in the Portfolio on the relevant Closing
         Date exceeds such arrears on such Monthly Payment Date (without double
         counting but including principal received or treated as received after
         completion of the enforcement procedures);

         "PRINCIPAL TERM ADVANCES" has the meaning given in CLAUSE 5.4 of the
         Funding 1 Deed of Charge;

         "PRODUCT SWITCH" means a variation to the financial terms or conditions
         included in the Mortgage Terms applicable to a Loan other than:

         (a)  any variation agreed with a Borrower to control or manage arrears
              on a Loan;

         (b)  any variation to the interest rate as a result of Borrowers being
              linked to HVR2;

         (c)  any variation in the maturity date of a Loan unless, while the
              First Issuer Intercompany Loan is outstanding, it is extended
              beyond June, 2040;

         (d)  any variation imposed by statute; or

<PAGE>
                                       37

         (e)  any variation in the frequency with which the interest payable in
              respect of the Loan is charged;

         "PROPERTIES IN POSSESSION COVER" means the properties in possession
         cover written by Royal & Sun Alliance Insurance PLC in favour of the
         Seller and any endorsements or extensions thereto as issued from time
         to time, or any such similar alternative or replacement policy or
         policies as may in future be issued in favour of the Seller;

         "PROPERTY" means a freehold or leasehold property which is subject to a
         Mortgage;

         "PROVISIONAL PORTFOLIO" means the portfolio of Loans and their Related
         Security, particulars of which are set out in Part 1 of the Exhibit to
         the Mortgage Sale Agreement or in a document stored upon electronic
         media (including, but not limited to, a CD-ROM), and all right, title,
         interest and benefit of the Seller in and to:

         (a)  all payments of principal and interest (including, for the
              avoidance of doubt, all Accrued Interest, Arrears of Interest,
              Capitalised Expenses and Capitalised Arrears) and other sums due
              or to become due in respect of such Loans and Related Security
              including, without limitation, the right to demand, sue for,
              recover and give receipts for all principal monies, interest and
              costs and the right to sue on all covenants made or expressed to
              be made in favour of the Seller under the applicable Mortgage
              Terms;

         (b)  subject where applicable to the subsisting rights of redemption
              of Borrowers, all Deeds of Consent, Deeds of Postponement or any
              collateral security for the repayment of the relevant Loans
              secured by the Mortgages;

         (c)  the right to exercise all the powers of the Seller in relation
              thereto;

         (d)  all the estate and interest in the Properties vested in the
              Seller;

         (e)  each Certificate of Title and Valuation Report and any right of
              action of the Seller against any solicitor, valuer or other
              person in connection with any report, valuation, opinion,
              certificate or other statement of fact or opinion given in
              connection with such Loans and Related Security, or any part
              thereof or affecting the decision of the Seller to make or offer
              to make any such Loan or part thereof;

         (f)  all rights, title and interests of the Seller (including, without
              limitation, the proceeds of all claims) to which the Seller is
              entitled under the Buildings Policies and the Properties in
              Possession Cover; and

         (g)  the MIG Policies, so far as they relate to the Loans comprised in
              that portfolio of Loans and their Related Security, including the
              right to receive the proceeds of any claim;

         "PURCHASE PRICE" is the sum of Pound Sterling 3,500,000,000 paid by
         Funding 1 to the Seller in consideration of the Seller's assignment of
         the Initial Portfolio (together with any Accrued Interest and Arrears
         of Interest as at the Initial Closing Date) to the Mortgages Trustee
         and the Funding 1 Share thereof;

         "QUARTERLY CPR" on any date means the average of the three most recent
         CPRs;

         "QUALIFYING LENDER" means a lender which is (on a date that any payment
         to it under the Funding 1 Liquidity Documents falls due):

<PAGE>
                                       38

         (a)  (i)   a bank (as defined for the purpose of section 349 ICTA); or

              (ii)  in respect of an advance made under a Funding 1 Liquidity
                    Document by a person that was a bank (as defined for the
                    purpose of section 349 as above) at the time that such
                    advance was made, a person, which is within the charge to
                    United Kingdom corporation tax as regards any payments of
                    interest received by it under the Funding 1 Liquidity
                    Documents and is the beneficial owner of that interest at
                    the time the interest is paid; or

         (b)  (i)   a company resident in the United Kingdom for United Kingdom
                    tax purposes; or

              (ii)  a partnership each member of which is a company resident in
                    the United Kingdom for United Kingdom tax purposes; or

              (iii) a company not so resident in the United Kingdom which
                    carries on a trade in the United Kingdom through a branch or
                    agency and which brings into account payments made to it
                    under the Funding 1 Liquidity Documents in computing its
                    chargeable profits (within the meaning given by section
                    11(2) Income and Corporation Taxes Act 1988),

              which, in each case, is beneficially entitled to payments made to
              it under this Agreement; or

         (c)  a Treaty Lender; or

         (d)  a building society authorised under the Building Societies Act
              1986 and entitled to receive interest without deduction or
              withholding on account of United Kingdom Tax to which the Income
              Tax (Building Societies) (Dividends and Interest) Regulations
              1990 (or other regulations made under sub-section 477A(1) of the
              Income and Corporation Taxes Act 1988) apply;

         "RATING AGENCIES" means S&P, Moody's and Fitch;

         "REASONABLE, PRUDENT MORTGAGE LENDER" means a reasonably prudent prime
         residential mortgage lender lending to borrowers in England and Wales
         who generally satisfy the lending criteria of traditional sources of
         residential mortgage capital;

         "RECEIVER" means any person or persons appointed (and any additional
         person or persons appointed or substituted) as an administrative
         receiver, receiver, manager, or receiver and manager of the Funding 1
         Charged Property by the Security Trustee pursuant to CLAUSE 13.1 of the
         Funding 1 Deed of Charge;

         "REDEMPTION FEE" means the standard redemption fee charged to the
         Borrower by the Seller where the Borrower makes a repayment of the full
         outstanding principal of a Loan;

         "REFERENCE BANKS" means the principal London office of each of ABN AMRO
         Bank N.V., Barclays Bank PLC, Citibank, N.A. and the Royal Bank of
         Scotland plc and/or such other bank as may be appointed agent bank from
         time to time pursuant to the Second Issuer Paying Agent and Agent Bank
         Agreement or, as the context may require, the First Issuer Paying Agent
         and Agent Bank Agreement;

<PAGE>
                                       39

         "REGISTERED LAND" means land, title to which is, or is required to be,
         registered at H.M. Land Registry;

         "REGISTERED TRANSFER" means a deed of transfer of a Mortgage or
         Mortgages over registered land substantially in the form set out in
         SCHEDULE 2 to the Mortgage Sale Agreement with such modifications as
         may be required from time to time;

         "RELATED SECURITY" means, in relation to a Loan, the security for the
         repayment of that Loan including the relevant Mortgage and all other
         matters applicable thereto acquired as part of the Portfolio assigned
         to the Mortgage Trustee pursuant to CLAUSE 2.1 or CLAUSE 4.1 of the
         Mortgage Sale Agreement including (without limitation):

         (a)  the benefit of all affidavits, consents, renunciations, waivers
              and postponements (including, without limitation, Deeds of
              Consent and Deeds of Postponement) from occupiers and other
              persons having an interest in or rights in connection with the
              relevant Property;

         (b)  each right of action of the Seller against any person (including,
              without limitation, any valuer, licensed or qualified
              conveyancer, solicitor and any registrar or registry) in
              connection with any report, valuation, opinion, certificate or
              other statement of fact or opinion (including, without
              limitation, each Certificate of Title and Valuation Report) given
              or received in connection with all or part of any Loan and its
              Related Security or affecting the decision of the Seller to make
              or offer to make all or part of the relevant Loan; and

         (c)  the benefit of (including, without limitation, the rights as the
              insured person under and as notations of interest on, returns of
              premium and proceeds of claims under) insurance and assurance
              policies (including, the Buildings Policies and MIG Policies)
              deposited, charged, obtained, or held in connection with the
              relevant Loan, Mortgage and/or Property and Loan Files;

         (but excluding, for the avoidance of doubt, the Properties in
         Possession Cover in respect of which the Mortgages Trustee, Funding 1
         and the Security Trustee have received the Insurance Acknowledgement);

         "RELEVANT ACCUMULATION AMOUNT" means the amount of funds to be
         accumulated over a Cash Accumulation Period in order to repay a Bullet
         Term Advance or a Scheduled Amortisation Instalment on its Scheduled
         Repayment Date;

         "RELEVANT EVENT" means, in relation to the Funding 1 Liquidity Facility
         Provider:

         (a)  the downgrade on any day of the Funding 1 Liquidity Facility
              Provider's short-term, unsecured, unsubordinated and unguaranteed
              debt to below the Requisite Ratings; or

         (c)  the refusal by the Funding 1 Liquidity Facility Provider, to
              grant an extension of the Funding 1 Liquidity Facility Commitment
              Period, in accordance with CLAUSE 2.3 of the Funding 1 Liquidity
              Facility Agreement;

         "RELEVANT SCREEN RATE" in relation to each Intercompany Loan means (i)
         in respect of the first Interest Period, the Initial Relevant Screen
         Rate specified in the relevant Intercompany Loan Confirmation; and (ii)
         in respect of subsequent Interest Periods, means the arithmetic mean of
         offered quotations for three-month Sterling deposits in the London
         inter-bank market displayed on the Dow-Jones/Telerate Monitor at
         Telerate Page No. 3750; in each case,

<PAGE>
                                       40

         displayed on the above mentioned page of the Dow-Jones/Telerate Monitor
         (or such replacement page on that service which displays the
         information) or, if that service ceases to display the information,
         such other screen service as may be determined by Funding 1 with the
         approval of the Security Trustee (rounded upwards, if necessary, to
         five decimal places);

         "RELEVANT SHARE CALCULATION DATE" means the Calculation Date at the
         start of the most recently completed Calculation Period;

         "REPAYMENT DATE" means the earlier to occur of (i) the date when the
         Intercompany Loans have been repaid in full and (ii) the Funding 1
         Interest Payment Date in [June 2042] (unless the parties hereto
         otherwise agree to extend the provision of the Funding 1 Liquidity
         Facility beyond such date);

         "REPAYMENT REQUIREMENT" means on a Calculation Date, the amount, if
         any, by which the aggregate of all amounts that will be payable by
         Funding 1 on the next Funding 1 Interest Payment Date as described in
         PARAGRAPHS 2.1 (c) to (e) (inclusive) of PART II of SCHEDULE 3 to the
         Funding 1 Deed of Charge on the basis:

         (a)  that there would be no deferral in relation to Term Advances
              pursuant to Rule (1) set out in PARAGRAPH 2.2(a) of PART II of
              SCHEDULE 3;

         (b)  that where Rule (2) or Rule (3) as set out in paragraph 2.2(a) of
              PART II of SCHEDULE 3 applies to an Intercompany Loan, the amount
              so payable by Funding 1 in respect of Term Advances (other than
              Bullet Term Advances and Scheduled Amortisation Instalments)
              under that Intercompany Loan shall be treated as the lesser of
              (A) the amount due and payable in respect of those Term Advances,
              and (B) the amount of the limit determined under that Rule (2) or
              Rule (3) in relation to that Intercompany Loan (but, for this
              purpose, amounts credited to the Principal Deficiency Ledger on
              that date or on the immediately preceding Funding 1 Interest
              Payment Date shall be excluded in calculating that limit);

         (c)  that Term Advances will be treated as due and payable if they are
              already due and payable, or would become due and payable on or
              before the next Funding 1 Interest Payment Date if all Principal
              Receipts were paid to Funding 1 on that Calculation Date; and

         (d)  excluding amounts due and payable in respect of Bullet Term
              Advances and Scheduled Amortisation Instalments,

         exceeds the sum of:

         (e)  the amounts standing to the credit of the Funding 1 Principal
              Ledger as at the last Funding 1 Interest Payment Date (which
              amount was not distributed on that Funding 1 Interest Payment
              Date to the First Issuer); and

         (f)  the sum of each Repayment Requirement amount paid to Funding 1 on
              a previous Distribution Date during the relevant interest period;

         "REPRESENTATIONS AND WARRANTIES" means the representations and
         warranties set out in SCHEDULE 1 to the Mortgage Sale Agreement;

         "REQUISITE RATING" means in respect of the Funding 1 Liquidity Facility
         Provider as provider of the Funding 1 Liquidity Facility, a rating of
         P-1 by Moody's, F1 by Fitch and A+ by S&P;

<PAGE>
                                       41

         "RESERVE FUND" means the fund established from the proceeds of the
         First Start-up Loan Agreement, the Second Start-up Loan and any New
         Start-up Loan Agreement which may be used by Funding 1 to meet any
         deficit in revenue or to repay amounts of principal;

         "RESERVE FUND REQUIRED AMOUNT" means Pound Sterling[150,000,000];

         "RESERVE FUND THRESHOLD" means the lesser of:

         (a)  the Reserve Fund Required Amount, and

         (b)  the highest amount which the Adjusted Reserve Fund Level has been
              since the first Funding 1 Interest Payment Date upon which
              interest is due and payable in respect of Term Advances made upon
              the Closing Date relating to the then most recent issue of Issuer
              Notes;

         "RESERVE LEDGER" means the ledger established and maintained by the
         Cash Manager pursuant to CLAUSE 4.3(b) OF the Cash Management
         Agreement;

         "REVENUE LEDGER" means the ledger maintained by the Cash Manager
         pursuant to the Cash Management Agreement and CLAUSE 14 of the
         Mortgages Trust Deed to record Revenue Receipts received by the
         Mortgage Trustee and payment of the same to Beneficiaries;

         "REVENUE RECEIPTS" means each payment received in respect of any Loan,
         whether as all or part of a Monthly Payment in respect of such Loan, on
         redemption (including partial redemption) of such Loan, on enforcement
         of such Loan (including the proceeds of sale of such Loan), on the
         disposal of such Loan or otherwise (including payments pursuant to any
         Insurance Policy) which in any such case is not a Principal Receipt in
         respect of such Loan;

         "S&P" and "STANDARD & POOR'S" means Standard & Poor's Rating Services,
         a division of The McGraw-Hill Companies, Inc. and includes any
         successor to its rating business;

         "SCHEDULED AMORTISATION INSTALMENT" means that part of a Scheduled
         Amortisation Term Advance which is payable on each of the Scheduled
         Repayment Dates of that Term Advance;

         "SCHEDULED AMORTISATION REPAYMENT RESTRICTIONS" means at any time on a
         Funding 1 Interest Payment Date:

         (a)  where there is not a Bullet Accumulation Shortfall at that time,
              the total amount withdrawn from the Cash Accumulation Ledger on
              that Funding 1 Interest Payment Date for repayment of the
              relevant Scheduled Amortisation Instalments shall not exceed the
              Cash Accumulation Ledger Amount less the Bullet Accumulation
              Liability at that time; and

         (b)  where there is a Bullet Accumulation Shortfall at that time:

              (i)  no amount may be withdrawn from the Cash Accumulation Ledger
                   on that Funding 1 Interest Payment Date to be applied in
                   repayment of the relevant Scheduled Amortisation
                   Instalments; and

              (ii) no amount may be applied in repayment of the relevant
                   Scheduled Amortisation Instalments unless:

                   (1)  the sum of the Cash Accumulation Ledger Amount and the
                        amount of Funding 1 Available Principal Receipts after
                        the application of

<PAGE>
                                       42

                        items (a) and (b) and before item (c) of the Funding 1
                        Pre-Enforcement Principal Priority of Payments,

                        is greater than or equal to

                   (2)  the sum of the Bullet Accumulation Liability and the
                        aggregate amount of Scheduled Amortisation Instalments
                        which are due and payable as at that time.

         "SCHEDULED AMORTISATION TERM ADVANCE" means the Second Issuer Series 3
         Term AAA Advance and any New Scheduled Amortisation Term Advance;

         "SCHEDULED REPAYMENT DATE" in relation to a Term Advance means its
         Scheduled Repayment Date(s), as defined in the relevant Issuer Master
         Definitions and Construction Schedule relating to the corresponding
         class of Issuer Notes;

         "SEARCH INDEMNITY POLICY" means the search indemnity policy written by
         Royal & Sun Alliance Insurance PLC in favour of the Seller and any
         endorsements or extensions thereto as issued from time to time, or any
         such similar alternative or replacement policy or policies as may in
         future be issued in favour of the Seller;

         "SEC" or "SECURITIES AND EXCHANGE COMMISSION" means the United States
         Securities and Exchange Commission;

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

         "SECOND ISSUER CLOSING DATE" means on or about [6th March], 2003;

         "SECOND ISSUER INTERCOMPANY LOAN AGREEMENT" means the Second Issuer
         Intercompany Loan Confirmation and the Intercompany Loan Terms and
         Conditions together entered into on or about the Second Issuer Closing
         Date by the Second Issuer, Funding 1 and the Security Trustee (as the
         same may be amended and/or supplemented from time to time);

         "SECOND START-UP LOAN" means the start-up loan that the Start-up Loan
         Provider has made available to Funding 1 pursuant to the Second
         Start-up Loan Agreement;

         "SECOND START-UP LOAN AGREEMENT" means the agreement to be entered into
         on or about the Second Issuer Closing Date between Funding 1, the
         Second Start-up Loan Provider and the Security Trustee relating to the
         provision of the Second Start-up Loan to Funding 1 (as the same may be
         amended and/or supplemented from time to time);

         "SECOND START-UP LOAN PROVIDER" means the Start-up Loan Provider in its
         capacity as provider of the Second Start-up Loan;

         "SECURED AMOUNTS" means any and all of the moneys and liabilities which
         an Issuer covenants to pay or discharge under of the relevant Issuer
         Deed of Charge and all other amounts owed by it to the Beneficiaries
         under and pursuant to the relevant Transaction Documents;

         "SECURITIES ACT" means the United States Securities Act of 1933, as
         amended;

<PAGE>
                                       43

         "SECURITY INTEREST" or "ENCUMBRANCE" means any mortgage, sub mortgage,
         charge, sub charge, pledge, lien (other than a lien arising in the
         ordinary course of business or by operation of law) or other
         encumbrance or security interest howsoever created or arising;

         "SECURITY POWER OF ATTORNEY" means the power of attorney granted by
         Funding 1 in favour of the Security Trustee under the Funding 1 Deed of
         Charge on the Initial Closing Date substantially in the form set out in
         SCHEDULE 1 to the Funding 1 Deed of Charge;

         "SECURITY TRUSTEE" means, as the context requires,:

         (a)  in relation to the First Issuer, the First Issuer Secured
              Creditors, the First Issuer Deed of Charge, the First Issuer
              Security and the First Issuer Intercompany Loan Agreement, each
              of U.S. Bank National Association at 1 Federal Street, 3rd Floor,
              Boston, Massachusetts 02110 and State Street Bank and Trust
              Company at 225 Franklin Street, Boston, Massachusetts 02110, each
              acting as co-trustee in their capacity as Security Trustee under
              the terms of the First Issuer Deed of Charge or such other person
              as may from time to time be appointed as Security Trustee (or
              co-trustee) pursuant to the First Issuer Deed of Charge;

         (b)  in relation to the Second Issuer, the Second Issuer Secured
              Creditors, the Second Issuer Deed of Charge, the Second Issuer
              Security and the Second Issuer Intercompany Loan Agreement, U.S.
              Bank National Association at 1 Federal Street, 3rd Floor, Boston,
              Massachusetts 02110 acting as Security Trustee under the terms of
              the Second Issuer 1 Deed of Charge or such other person as may
              from time to time be appointed as Security Trustee (or
              co-trustee) pursuant to the Second Issuer Deed of Charge; and

         (c)  in relation to Funding 1, the Funding 1 Secured Creditors, the
              Funding 1 Deed of Charge, the Funding 1 Security and each
              Transaction Document (other than an Issuer Intercompany Loan
              Agreement) to which each of Funding 1 and the Security Trustee is
              a party, each of U.S. Bank National Association at 1 Federal
              Street, 3rd Floor, Boston, Massachusetts 02110 and State Street
              Bank and Trust Company at 225 Franklin Street, Boston,
              Massachusetts 02110, each acting as co-trustees in their capacity
              as Security Trustee under the terms of the Funding 1 Deed of
              Charge, or such other person as may from time to time be
              appointed as Security Trustee (or co-trustee) pursuant to the
              Funding 1 Deed of Charge;

         "SELLER" means Halifax;

         "SELLER BANK ACCOUNTS" means the bank account(s) of the Seller into
         which monies may be paid from time to time pursuant to the terms of the
         Mortgages Trust Deed, details of which will be given to the Mortgages
         Trustee and Funding 1;

         "SELLER POWER OF ATTORNEY" means the power of attorney granted by the
         Seller in favour of Funding 1, the Mortgages Trustee and the Security
         Trustee on the Initial Closing Date, substantially in the form set out
         in SCHEDULE 5 to the Mortgage Sale Agreement;

         "SELLER SHARE" means, only in respect of the period prior to the first
         Distribution Date, the Initial Seller Share and thereafter means the
         Current Seller Share;

         "SELLER SHARE PERCENTAGE" means, only in respect of the period prior to
         the first Distribution Date, the Initial Seller Share Percentage and
         thereafter means the Current Seller Share Percentage;

<PAGE>
                                       44

         "SELLER'S POLICY" means the originating, underwriting, administration,
         arrears and enforcement policy applied by the Seller from time to time
         to loans and the security for their repayment which are beneficially
         owned solely by the Seller;

         "SERVICER" means Halifax, or such other person as may from time to time
         be appointed as servicer of the Portfolio pursuant to the Servicing
         Agreement;

         "SERVICER TERMINATION EVENT" means any of the events listed in CLAUSE
         21 of the Servicing Agreement;

         "SERVICES" has the meaning set out in CLAUSE 3.1(A) of the Servicing
         Agreement;

         "SERVICING AGREEMENT" means the agreement entered into on the Initial
         Closing Date between the Servicer, the Mortgages Trustee, the Security
         Trustee, Funding 1 and the Seller (as amended and restated on or about
         the Second Issuer Closing Date) pursuant to which the Servicer agrees
         to administer the Loans and their Related Security comprised in the
         Portfolio (as the same may be further amended and/or supplemented from
         time to time);

         "SHARE TRUSTEE" means, in respect of Holdings, SFM Corporate Services
         Limited of Blackwell House, Guildhall Yard, London EC2V 5AE; and in
         respect of Mortgages Trustee, SFM Offshore Limited of 47 Esplanade, St.
         Helier, Jersey JE1 0BD, Channel Islands;

         "STANDARD DOCUMENTATION" means the standard documentation, a list of
         which is set out in Part 2 of the Exhibit to the Mortgage Sale
         Agreement and copies of which have been initialled on behalf of the
         parties thereto for the purposes of identification, or any update or
         replacement therefor as the Seller may from time to time introduce
         acting in accordance with the standards of a reasonable, prudent
         mortgage lender;

         "START-UP LOAN AGREEMENTS" means the First Start-up Loan Agreement, the
         Second Start-up Loan Agreement and any New Start-up Loan Agreements and
         "START-UP LOAN AGREEMENT" means any of them;

         "START-UP LOAN PROVIDER" means Halifax, in its capacity as provider of
         the First Start-up Loan and the Second Start-up Loan;

         "START-UP LOAN PROVIDERS" means the First Start-up Loan Provider, the
         Second Start-up Loan Provider or, as the context may require, any New
         Start-up Loan Provider;

         "START-UP LOANS" means the First Start-up Loan, the Second Start-up
         Loan and any New Start-up Loan;

         "SUBSIDIARY" means a subsidiary as defined in Section 736 of the
         Companies Act 1985;

         "TARGET BUSINESS DAY" means a day on which the Trans-European Automated
         Real-time Gross settlement Express (TARGET) system is open;

         "TAX CREDIT" means a credit against Tax obtained on the Funding 1
         Liquidity Facility Provider's overall net income which the Funding 1
         Liquidity Facility Provider is able to identify as attributable to a
         specific Tax Payment;

         "TAX PAYMENT" means a payment made by Funding 1 to the Funding 1
         Liquidity Facility Provider as per CLAUSE 10.1 of the Funding 1
         Liquidity Facility Agreement;

<PAGE>
                                       45

         "TAXES" means all present and future taxes, levies, imposts, duties
         (other than stamp duty), fees, deductions, withholdings or charges of
         any nature whatsoever and wheresoever imposed, including, without
         limitation, income tax, corporation tax, value added tax or other tax
         in respect of added value and any franchise, transfer, sales, gross
         receipts, use, business, occupation, excise, personal property, real
         property or other tax imposed by any national, local or supranational
         taxing or fiscal authority or agency together with any penalties, fines
         or interest thereon and "TAX" and "TAXATION" shall be construed
         accordingly;

         "TERM AAA ADVANCES" means the First Issuer Term AAA Advances, the
         Second Issuer Term AAA Advances and any term AAA advances made by any
         New Issuer;

         "TERM ADVANCE RATING" means the designated rating of each Term Advance
         which reflects the rating assigned to the corresponding class of Notes
         used to fund each such Term Advance on the relevant Closing Date of
         that Term Advance;

         "TERM ADVANCES" has the meaning given in each Issuer Master Definitions
         and Construction Schedule as prefixed by the definition of each
         respective Issuer (being by way of example the "FIRST ISSUER TERM
         ADVANCES" in the First Issuer Master Definitions and Constructive
         Schedule);

         "THIRD PARTY AMOUNTS" includes:

         (a)  amounts under a direct debit which are repaid to the bank making
              the payment if such a bank is unable to recoup that amount itself
              from the customer's account;

         (b)  payments by Borrowers of any fees and other charges which are due
              to the Seller; or

         (c)  recoveries in respect of amounts deducted from Loans as described
              in PARAGRAPHS (i) to (IV) of CLAUSE 8.4(a) of the Mortgages Trust
              Deed, which will belong to and be paid to Funding 1 and/or the
              Seller as described therein;

         "THIRD PARTY COLLECTION AGENT" means an entity that shall act as
         collection agent for the Mortgages Trustee and the Beneficiaries under
         the Direct Debiting Scheme or any successor to that scheme pursuant to
         CLAUSE 5.1(A)(i) of the Servicing Agreement;

         "TITLE DEEDS" means, in relation to each Loan and its Related Security
         and the Property relating thereto, all conveyancing deeds and documents
         which make up the title to the Property and the security for the Loan
         and all searches and enquiries undertaken in connection with the grant
         by the Borrower of the related Mortgage;

         "TOTAL PROPERTY" means at any time the aggregate amount standing to the
         credit of the Collection Account and held by Halifax on trust for the
         Issuer, the Mortgages Trustee and Halifax, subject to and in accordance
         with the Bank Agreement;

         "TRACKER RATE" means the rate of interest applicable to a Tracker Rate
         Loan (before applying any cap or minimum rate);

         "TRACKER RATE LOAN" means those Loans to the extent that and for such
         period that their Mortgage Terms provide that they are subject to an
         interest rate which is linked to a variable interest rate other than
         the Variable Base Rates. For example, the rate on a Tracker Rate Loan
         may be set at a margin above sterling LIBOR or above rates set by the
         Bank of England;

<PAGE>
                                       46

         "TRACKER SWAP RATE" means a rate linked to the Bank of England repo
         rate, as shall be determined by the Cash Manager in accordance with the
         provisions of the Cash Management Agreement;

         "TRANSACTION DOCUMENTS" means the Funding 1 Agreements, the First
         Issuer Transaction Documents, the Second Issuer Transaction Documents
         and any documents and agreements to which any New Issuer is a party,
         the Mortgages Trustee Guaranteed Investment Contract and all other
         documents and agreements referred to therein;

         "TREATY LENDER" means a person who is resident (as such term is defined
         in the appropriate Double Taxation Treaty) in a country with which the
         United Kingdom has an appropriate Double Taxation Treaty giving
         residents of that country complete exemption from United Kingdom
         taxation on interest and does not carry on business in the United
         Kingdom through a permanent establishment with which any payment under
         the Funding 1 Liquidity Documents is effectively connected;

         "TRIGGER EVENT" means an Asset Trigger Event and/or a Non-Asset Trigger
         Event, as the case may be;

         "TRUST CORPORATION" means a corporation entitled by rules made under
         the Public Trustee Act 1906 to carry out the functions of a custodian
         trustee;

         "TRUST INDENTURE ACT" means the United States Trust Indenture Act of
         1939, as amended;

         "TRUST PROPERTY" means:

         (a)  the Initial Trust Property, the Closing Trust Property and any
              Future Trust Property (together with the proceeds of sale of any
              of them) but excludes any Loans that have been repaid or which
              have been repurchased by the Seller pursuant to the Mortgage Sale
              Agreement or other actual adjustments and, for the avoidance of
              doubt, which are not deemed adjustments to the Trust Property as
              set out in the Mortgages Trust Deed;

         (b)  any increase in the Outstanding Principal Balance of a Loan due
              to Borrowers taking Payment Holidays or making Underpayments or
              making drawings under any Flexible Loans;

         (c)  any interest and principal paid by Borrowers on their Loans;

         (d)  any other amounts received from Borrowers under their Loans or in
              respect of their Loans and Related Security (but excluding Third
              Party Amounts);

         (e)  rights under the Insurance Policies that are assigned to the
              Mortgages Trustee or which the Mortgages Trustee has the benefit
              of; and

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

         less

         (g)  any losses in relation to Loans and any actual reductions (and
              for the avoidance of doubt, not deemed reductions) occurring in
              respect of the Loans as set out in Clause 8.4(a) of the Mortgages
              Trust Deed; and

<PAGE>
                                       47

         (h)  allocations of Mortgages Trust Available Principal Receipts to
              the Beneficiaries in accordance with Clause 11 of the Mortgages
              Trust Deed;

         "UK NON-BANK LENDER" means a lender within the meaning of paragraph (b)
         of the definition of "Qualifying Lender";

         "UNDERPAYMENT" means a payment made by a Borrower in an amount less
         than the Monthly Payment then due on the Loan being a sum not exceeding
         the aggregate of any previous Overpayments;

         "UNITED KINGDOM" means The United Kingdom of Great Britain and Northern
         Ireland;

         "UNITED STATES" means The United States of America;

         "UNREGISTERED LAND" means land title to which is not, and is not
         required to be, registered at H.M. Land Registry;

         "UNREGISTERED TRANSFER" means a deed of transfer of a Mortgage or
         Mortgages over unregistered land substantially in the form set out in
         SCHEDULE 3 to the Mortgage Sale Agreement with such modifications as
         may be required from time to time;

         "VALUATION REPORT" means the valuation report or reports for mortgage
         purposes, in the form of the pro-forma contained in the Standard
         Documentation, obtained by the Seller from a Valuer in respect of each
         Property or a valuation report in respect of a valuation made using a
         methodology which would be acceptable to a reasonable prudent mortgage
         lender and which has been approved by the Director of Group Property
         and Survey of the Seller (or his successor);

         "VALUER" means an Associate or Fellow of the Royal Institution of
         Chartered Surveyors or the Incorporated Society of Valuers and
         Auctioneers who was at the relevant times either a member of a firm
         which was on the list of Valuers approved by or on behalf of the Seller
         from time to time or an Associate or Fellow of the Royal Institute of
         Chartered Surveyors or the Incorporated Society of Valuers and
         Auctioneers employed in-house by the Seller acting for the Seller in
         respect of the valuation of a Property;

         "VARIABLE BASE RATES" means HVR 1, HVR 2 or the Mortgages Trustee
         Variable Base Rate, as applicable;

         "VARIABLE MORTGAGE RATE" means the rate of interest which determines
         the amount of interest payable each month on a Variable Rate Loan;

         "VARIABLE RATE LOANS" means those Loans to the extent that and for such
         period that their Mortgage Terms provide that they are subject to a
         rate of interest which may at any time be varied in accordance with the
         relevant Mortgage Terms (and shall, for the avoidance of doubt, exclude
         Loans during the period that they are Fixed Rate Loans or Tracker Rate
         Loans);

         "WAFF" means the weighted average repossession frequency in respect of
         the Portfolio; and

         "WALS" means the weighted average loss severity in respect of the
         Portfolio.

<PAGE>
                                       48

2.       INTERPRETATION AND CONSTRUCTION

         Any reference in this Amended and Restated Master Definitions and
         Construction Schedule or any Transaction Document or in any document to
         which this Amended and Restated Master Definitions and Construction
         Schedule is expressed to be incorporated or as to which this Amended
         and Restated Master Definitions Schedule is expressed to apply:

         "AFFILIATE" of any person shall be construed as a reference to the
         ultimate holding company of that person or an entity of which that
         person or its ultimate holding company (a) has direct or indirect
         control or (b) owns directly or indirectly more than fifty per cent.
         (50%) of the share capital or similar rights of ownership;

         the "ASSETS" of any person shall be construed as a reference to the
         whole or any part of its business, undertakings, property, intellectual
         property, shares, securities, debts, accounts, revenues (including any
         right to receive revenues), goodwill, shareholdings and uncalled
         capital including premium whether now or hereafter acquired and any
         other assets whatsoever;

         an "AUTHORISATION" includes an authorisation, consent, approval,
         resolution, licence, exemption, filing or registration;

         "DISPOSAL" shall be construed as any sale, lease, transfer, conveyance,
         assignment, assignation, licence, sub-licence or other disposal and
         "DISPOSE" shall be construed accordingly;

         a "GUARANTEE" means any guarantee, bond, indemnity, letter of credit,
         third party security or other legally binding assurance against
         financial loss granted by one person in respect of any indebtedness of
         another person, or any agreement to assume any indebtedness of any
         other person or to supply funds or to invest in any manner whatsoever
         in such other person by reason of, or otherwise in relation to,
         indebtedness of such other person;

         "INDEBTEDNESS" shall be construed so as to include any obligation
         (whether incurred as principal or as surety) for the payment or
         repayment of money, whether present or future, actual or contingent;

         a "MONTH" is a reference to a period starting on one day in a calendar
         month and ending on the numerically corresponding day in the next
         calendar month save that, where any such period would otherwise end on
         a day which is not a business day, it shall end on the next business
         day, unless that day falls in the calendar month succeeding that in
         which it would otherwise have ended, in which case it shall end on the
         preceding business day Provided that, if a period starts on the last
         business day in a calendar month or if there is no numerically
         corresponding day in the month in which that period ends, that period
         shall end on the last business day in that later month (and references
         to "MONTHS" shall be construed accordingly);

         a "REGULATION" includes any regulation, rule, official directive,
         request or guideline (whether or not having the force of law) of any
         governmental, inter-governmental or supranational body, agency,
         department or regulatory, self-regulatory or other authority or
         organisation;

         "VAT" means value added tax imposed by the United Kingdom as referred
         to in the Value Added Tax Act 1994 and legislation (whether delegated
         or otherwise) replacing the same or supplemental thereto or in any
         primary or subordinate legislation promulgated by the European Union or
         any official body or agency thereof, and any similar turnover tax
         replacing or introduced in addition to any of the same;

<PAGE>
                                       49

         a "WHOLLY-OWNED SUBSIDIARY" of a company or corporation shall be
         construed as a reference to any company or corporation which has no
         other members except that other company or corporation and that other
         company's or corporation's wholly-owned subsidiaries or persons acting
         on behalf of that other company or corporation or its wholly-owned
         subsidiaries; and

         the "WINDING-UP", "DISSOLUTION" or "ADMINISTRATION" of a company or
         corporation shall be construed so as to include any equivalent or
         analogous proceedings under the law of the jurisdiction in which such
         company or corporation is incorporated or any jurisdiction in which
         such company or corporation carries on business including the seeking
         of liquidation, winding-up, bankruptcy, reorganisation, dissolution,
         administration, arrangement, adjustment, protection or relief of
         debtors.

2.1      "POUND STERLING", "STERLING" or "POUNDS STERLING" denotes the lawful
         currency for the time being of the United Kingdom and "Euro" or "EURO"
         denotes the single currency introduced at the start of the third stage
         of European Economic Monetary Union pursuant to the Treaty of Rome of
         25th March, 1957, as amended by, inter alia, the Single European Act of
         1986 and the Treaty of European Union of 7th February, 1992 and the
         Treaty of Amsterdam of 2nd October, 1997 establishing the European
         Community, as further amended from time to time.

2.2      In this Amended and Restated Master Definitions and Construction
         Schedule and in any of the Transaction Documents in which this Amended
         and Restated Master Definitions and Construction Schedule is expressed
         to be incorporated or to which this Amended and Restated Master
         Definitions and Construction Schedule is expressed to apply:

         (a)  words denoting the singular number only shall include the plural
              number also and vice versa;

         (b)  words denoting one gender only shall include the other genders;

         (c)  words denoting persons only shall include firms and corporations
              and vice versa;

         (d)  references to any statutory provision shall be deemed also to
              refer to any statutory modification or re-enactment thereof or
              any statutory instrument, order or regulation made thereunder or
              under any such re-enactment;

         (e)  references to any agreement or other document (including any of
              the Transaction Documents) shall be deemed also to refer to such
              agreement or document as amended, varied, supplemented or novated
              from time to time;

         (f)  clause, paragraph and schedule headings are for ease of reference
              only;

         (g)  reference to a statute shall be construed as a reference to such
              statute as the same may have been, or may from time to time be,
              amended or re-enacted to the extent such amendment or
              re-enactment is substantially to the same effect as such statute
              on the date hereof;

         (h)  reference to a time of day shall be construed as a reference to
              London time; and

         (i)  references to any person shall include references to his
              successors, transferees and assigns and any person deriving title
              under or through him.

2.3      Any definition that appears in the Funding 1 Agreements or the
         Mortgages Trustee Guarantee Investment Contract that does not appear in
         this Amended and Restated Master Definitions

<PAGE>
                                       50

         and Construction Schedule, shall have the meaning given in the relevant
         Issuer Master Definitions and Construction Schedule or each Issuer
         Master Definitions and Construction Schedule, as the context so
         requires.

3.       AMENDMENTS

         Subject to CLAUSE 25 of the Funding 1 Deed of Charge (Supplemental
         Provisions Regarding the Security Trustee), any amendments to this
         Amended and Restated Master Definitions and Construction Schedule will
         be made only with the prior written consent of each party to this
         Amended and Restated Master Definitions and Construction Schedule.

4.       GOVERNING LAW

         This Amended and Restated Master Definitions and Construction Schedule
         is governed by, and shall be construed in accordance with, the laws of
         England.

<PAGE>
                                       51

                                   SIGNATORIES

Signed for the purposes of identification by        )
ALLEN & OVERY                                       )

Signed for the purposes of identification by        )
SIDLEY AUSTIN BROWN & WOOD                          )

<PAGE>

                             DATED [5TH MARCH], 2003

                        PERMANENT FUNDING (NO. 1) LIMITED

                       PERMANENT MORTGAGES TRUSTEE LIMITED

                     _______________________________________

                     AMENDED AND RESTATED MASTER DEFINITIONS
                            AND CONSTRUCTION SCHEDULE
                     _______________________________________<PAGE>

                                                                  Exhibit 10.5.2

DRAFT: 25/02/03

THIS SECOND ISSUER MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE is signed for
the purposes of identification on [5th March], 2003 by:

(1)      ALLEN & OVERY of One New Change, London EC4M 9QQ; and

(2)      SIDLEY AUSTIN BROWN & WOOD of 1 Threadneedle Street, London EC2R 8AW.

1.       DEFINITIONS

         "ADDITIONAL INTEREST" has the meaning given in Condition 4(B) of the
         Second Issuer Notes;

         "AGENT BANK" means Citibank, N.A. London Branch of 5 Carmelite Street,
         London EC4Y 0PA, or such other person for the time being acting as
         agent bank under the Second Issuer Paying Agent and Agent Bank
         Agreement;

         "AGENTS" means the Principal Paying Agent, the US Paying Agent, the
         Registrar, the Transfer Agent and the Agent Bank;

         "AUDITORS" means KPMG Audit Plc of 1 Canada Square, Canary Wharf,
         London E14 5AG or such other internationally recognised independent
         firm of auditors selected from time to time by the Second Issuer with
         the prior consent of the Note Trustee;

         "AUTHORISED DENOMINATIONS" means denominations of, in the case of the
         Series 1 Class A Second Issuer Notes, the Series 1 Class B Second
         Issuer Notes, the Series 1 Class C Second Issuer Notes, the Series 2
         Class A Second Issuer Notes, the Series 2 Class B Second Issuer Notes,
         the Series 2 Class C Second Issuer Notes and the Series 4 Class A
         Second Issuer Notes $1,000 or $10,000 and integral multiples thereof;
         in the case of the Series 3 Class A Second Issuer Notes the Series 3
         Class B Second Issuer Notes, the Series 3 Class C Second Issuer Notes,
         the Series 4 Class B Second Issuer Notes and the Series 4 Class C
         Second Issuer Notes, Euro 500,000 and integral multiples thereof; in
         the case of the Series 5 Class A Second Issuer Notes, the Series 5
         Class B Second Issuer Notes and the Series 5 Class C Second Issuer
         Notes, Pound Sterling 1,000 or Pound Sterling 10,000 and integral
         multiples thereof, and in any case such denominations (in each case) as
         the Note Trustee shall determine and notify to the relevant Second
         Issuer Noteholders;

         "AUTHORISED INVESTMENTS" means:

         (a)  Sterling gilt-edged securities; and

         (b)  Sterling demand or time deposits, certificates of deposit and
              short-term debt obligations (including commercial paper) (which
              may include deposits in any account which earns a rate of
              interest related to LIBOR) provided that in all cases such
              investments have a maturity date of 90 days or less and mature on
              or before the next Interest Payment Date and the short-term
              unsecured, unguaranteed and unsubordinated debt obligations of
              the issuing or guaranteeing entity or entity with which the
              demand or time deposits are made (being an authorised person
              under the FSMA 2000) are rated A-1+ by Standard & Poor's, F1+ by
              Fitch and P-1 by Moody's or their equivalents by three other
              internationally recognised rating agencies;

         "AUTHORISED SIGNATORY" means any authorised signatory referred to in
         the Second Issuer Account Mandate;

<PAGE>
                                       2

         "BASIC TERMS MODIFICATION" has the meaning given in PARAGRAPH 5 of
         SCHEDULE 4 to the Second Issuer Trust Deed;

         "BOOK-ENTRY INTEREST" means a beneficial interest in a global note
         representing the relevant class of Second Issuer Notes shown on records
         maintained in book-entry form by DTC, Euroclear or Clearstream,
         Luxembourg, as the case may be;

         "BUSINESS DAY" means a day which is a London Business Day, a New York
         Business Day and a TARGET Business Day;

         "CASH MANAGEMENT AGREEMENT" means the cash management agreement entered
         into on the Initial Closing Date between the Cash Manager, the
         Mortgages Trustee, Funding 1, and the Security Trustee (as the same may
         be amended and/or supplemented from time to time);

         "CASH MANAGER" means Halifax PLC in its capacity as cash manager for
         the Mortgages Trustee and Funding 1 pursuant to the terms of the Cash
         Management Agreement;

         "CLASS A SECOND ISSUER NOTE ACCELERATION NOTICE" means a notice issued
         by the Note Trustee to the Second Issuer and the Security Trustee
         declaring the Class A Second Issuer Notes to be due and repayable
         pursuant to Condition 9(A) of the Second Issuer Notes;

         "CLASS B SECOND ISSUER NOTE ACCELERATION NOTICE" means a notice issued
         by the Note Trustee to the Second Issuer and the Security Trustee
         declaring the Class B Second Issuer Notes to be due and repayable
         pursuant to Condition 9(B) of the Second Issuer Notes;

         "CLASS C SECOND ISSUER NOTE ACCELERATION NOTICE" means a notice issued
         by the Note Trustee to the Second Issuer and the Security Trustee
         declaring the Class C Second Issuer Notes to be due and repayable
         pursuant to Condition 9(C) of the Second Issuer Notes;

         "CLASS A SECOND ISSUER NOTEHOLDERS" means the holders for the time
         being of the Class A Second Issuer Notes;

         "CLASS B SECOND ISSUER NOTEHOLDERS" means the holders for the time
         being of the Class B Second Issuer Notes;

         "CLASS C SECOND ISSUER NOTEHOLDERS" means the holders for the time
         being of the Class C Second Issuer Notes;

         "CLASS A SECOND ISSUER NOTES" means the Series 1 Class A Second Issuer
         Notes, the Series 2 Class A Second Issuer Notes, the Series 3 Class A
         Second Issuer Notes, the Series 4 Class A Second Issuer Notes and the
         Series 5 Class A Second Issuer Notes;

         "CLASS B SECOND ISSUER NOTES" means the Series 1 Class B Second Issuer
         Notes, the Series 2 Class B Second Issuer Notes, the Series 3 Class B
         Second Issuer Notes, the Series 4 Class B Second Issuer Notes and the
         Series 5 Class B Second Issuer Notes;

         "CLASS C SECOND ISSUER NOTES" means the Series 1 Class C Second Issuer
         Notes, the Series 2 Class C Second Issuer Notes, the Series 3 Class C
         Second Issuer Notes, the Series 4 Class C Second Issuer Notes and the
         Series 5 Class C Second Issuer Notes;

<PAGE>
                                       3

         "CLEARSTREAM, LUXEMBOURG" means Clearstream Banking, societe anonyme;

         "CO-ARRANGERS" means JPMorgan and Lehman Brothers;

         "COMMON DEPOSITORY" means Citibank, N.A., in its capacity as common
         depository for Euroclear and Clearstream, Luxembourg;

         "CONDITIONS" or "TERMS AND CONDITIONS" means the terms and conditions
         of the Second Issuer Notes set out in the SCHEDULE 3 to the Second
         Issuer Trust Deed, as any of the same may from time to time be amended,
         varied or restated in accordance with the provisions of the Second
         Issuer Trust Deed and any reference to a numbered Condition shall be
         construed accordingly;

         "CORPORATE SERVICES AGREEMENTS" means, together, the Funding 1
         Corporate Services Agreement, the Second Issuer Corporate Services
         Agreement and the Mortgages Trustee Corporate Services Agreement;

         "CURRENCY SWAP AGREEMENTS" means the Series 1 Class A Second Issuer
         Swap Agreement, the Series 1 Class B Second Issuer Swap Agreement, the
         Series 1 Class C Second Issuer Swap Agreement, the Series 2 Class A
         Second Issuer Swap Agreement, the Series 2 Class B Second Issuer Swap
         Agreement, the Series 2 Class C Second Issuer Swap Agreement, the
         Series 3 Class A Second Issuer Swap Agreement, the Series 3 Class B
         Second Issuer Swap Agreement, the Series 3 Class C Second Issuer Swap
         Agreement, the Series 4 Class A Second Issuer Swap Agreement, the
         Series 4 Class B Second Issuer Swap Agreement and the Series 4 Class C
         Second Issuer Swap Agreement;

         "CURRENCY SWAP PROVIDER" means the relevant swap provider in relation
         to each of the Dollar Currency Swaps or Euro Currency Swaps, as the
         case may be, and "CURRENCY SWAP PROVIDERS" means all of them;

         "CURRENCY SWAP PROVIDER DEFAULT" means the occurrence of an Event of
         Default (as defined in the Currency Swap Agreements) where a Currency
         Swap Provider is the Defaulting Party;

         "DEFAULTING PARTY" has the meaning given to it in the Second Issuer
         Swap Agreements;

         "DEFERRED INTEREST" has the meaning given in Condition 4(B) of the
         Second Issuer Notes;

         "DEFINITIVE SECOND ISSUER NOTES" means the Dollar Definitive Second
         Issuer Notes and the Reg S Definitive Second Issuer Notes;

         "DESIGNATED SUBSIDIARY" has the meaning given in CLAUSE 2.2 of the
         Second Issuer Post-Enforcement Call Option Agreement;

         "DISTRIBUTION COMPLIANCE PERIOD" means the period until and including
         the 40th day after the later of the commencement of the offering of the
         Second Issuer Notes and the Second Issuer Closing Date;

         "DOLLAR CURRENCY EXCHANGE RATE" means the rates at which Dollars are
         converted to Sterling or, as the case may be, Sterling is converted to
         Dollars under the relevant Dollar

<PAGE>
                                       4

         Currency Swap or, if there is no relevant Dollar Currency Swap
         Agreement in effect at such time, the "SPOT" rate at which Dollars are
         converted to Sterling or, as the case may be, Sterling is converted to
         Dollars on the foreign exchange markets;

         "DOLLAR CURRENCY SWAP AGREEMENTS" means the ISDA master agreements,
         schedules and confirmations relating to the Dollar Currency Swaps to be
         entered into on or before the Second Issuer Closing Date between the
         Second Issuer, the relevant Dollar Currency Swap Provider and the
         Security Trustee (as the same may be amended and/or supplemented from
         time to time);

         "DOLLAR CURRENCY SWAP PROVIDER DEFAULT" means the occurrence of an
         Event of Default (as defined in the Currency Swap Agreements) where a
         Dollar Currency Swap Provider is the Defaulting Party;

         "DOLLAR CURRENCY SWAP PROVIDERS" means the Series 1 Dollar Second
         Issuer Provider, the Series 2 Second Issuer Swap Provider and the
         Series 4 Class A Second Issuer Swap Provider;

         "DOLLAR CURRENCY SWAPS" means the Sterling-Dollar currency swaps which
         enable the Second Issuer to receive and pay amounts under the Second
         Issuer Intercompany Loan in sterling and to receive and pay amounts
         under the Series 1 Second Issuer Notes, the Series 2 Second Issuer
         Notes and the Series 4 Class A Second Issuer Notes;

         "DOLLAR DEFINITIVE SECOND ISSUER NOTES" means the Series 1 Class A
         Definitive Second Issuer Notes, the Series 1 Class B Definitive Second
         Issuer Notes, the Series 1 Class C Definitive Second Issuer Notes, the
         Series 2 Class A Definitive Second Issuer Notes, the Series 2 Class B
         Definitive Second Issuer Notes, the Series 2 Class C Definitive Second
         Issuer Notes and the Series 4 Class A Definitive Second Issuer Notes;

         "DOLLAR GLOBAL SECOND ISSUER NOTES" means the Series 1 Class A Global
         Second Issuer Note, the Series 1 Class B Global Second Issuer Note, the
         Series 1 Class C Global Second Issuer Note, the Series 2 Class A Global
         Second Issuer Note, the Series 2 Class B Global Second Issuer Note, the
         Series 2 Class C Global Second Issuer Note and the Series 4 Class A
         Global Second Issuer Note;

         "DOLLAR INTEREST DETERMINATION DATE" means (other than in respect of
         the Series 1 Class A Second Issuer Notes) two London Business Days
         before the first day of the Interest Period for which the rate will
         apply (or if such day is not a Business Day, the next succeeding
         Business Day);

         "EURIBOR" will be determined by the Agent Bank on the following basis:

         (a)  on the Euro Interest Determination Date, the Agent Bank will
              determine the arithmetic mean, rounded upwards to five decimal
              places, of the offered quotations to leading banks in the
              Euro-zone inter-bank market for three-month euro deposits of
              10,000,000 (or, in the case of the first Interest Period, a
              linear interpolation of such rates for three-month euro
              deposits).

              This will be determined by reference to the display as quoted on
              the Moneyline Telerate Screen No. 248 or, if the Moneyline
              Telerate Screen No. 248 stops providing these quotations, the
              replacement service for the purposes of displaying this
              information will be used. If the replacement service stops
              displaying the

<PAGE>
                                       5

              information, another page as determined by the Second Issuer with
              the approval of the Note Trustee will be used.

              In each of these cases, the determination will be made at or
              about 11.00 a.m., Brussels time, on that date;

         (b)  if, on any such Euro Interest Determination Date, the screen rate
              is unavailable, the Agent Bank will:

              (1)  request the principal London office of each of the Reference
                   Banks to provide the Agent Bank with its offered quotation
                   to prime banks for euro deposits of the equivalent amount,
                   and for the relevant period, in the Euro-zone inter-bank
                   market as at or about 11.00 a.m. (Brussels time); and

              (2)  calculate the arithmetic mean, rounded upwards to five
                   decimal places, of those quotations;

         (c)  if, on any such Euro Interest Determination Date, the screen rate
              is unavailable and only two or three of the Reference Banks
              provide offered quotations, the relevant rate for that Interest
              Period will be the arithmetic mean of the quotations as
              calculated in paragraph (b); and

         (d)  if, on any such Euro Interest Determination Date, fewer than two
              Reference Banks provide quotations, the Agent Bank will consult
              with the Note Trustee and the Second Issuer for the purpose of
              agreeing a total of two banks in the Euro-zone inter-bank market
              to provide such quotations and the relevant rate for that
              Interest Period will be the arithmetic mean of the quotations as
              calculated in paragraph (b). If no such banks are agreed then the
              relevant rate for that Interest Period will be the rate in effect
              for the last preceding Interest Period for which paragraph (a) or
              (b) was applicable;

         "EUROCLEAR" means Euroclear Bank S.A./N.V., as operator of the
         Euroclear System or the successor for the time being to such business;

         "EURO CURRENCY EXCHANGE RATE" means the rates at which Euro is
         converted to Sterling or, as the case may be, Sterling is converted to
         Euro under the Euro Currency Swap or, if there is no Euro Currency Swap
         Agreement in effect at such time, the "SPOT" rate at which Euro is
         converted to Sterling or, as the case may be, Sterling is converted to
         Euro on the foreign exchange markets;

         "EURO CURRENCY SWAPS" means the Sterling-Euro currency swaps which
         enable the Second Issuer to receive and pay amounts under the Second
         Issuer Intercompany Loan in sterling and to receive and pay amounts
         under the Series 3 Second Issuer Notes, the Series 4 Class B Second
         Issuer Notes and the Series 4 Class C Second Issuer Notes;

         "EURO CURRENCY SWAP AGREEMENTS" means the ISDA master agreements,
         schedules and confirmations relating to the Euro Currency Swaps to be
         entered into on or before the Second Issuer Closing Date between the
         Second Issuer, the Euro Currency Swap Provider and the Security Trustee
         (as the same may be amended and/or supplemented from time to time);

<PAGE>
                                       6

         "EURO CURRENCY SWAP PROVIDERS" means the Series 3 Second Issuer Swap
         Providers, the Series 4 Class B Second Issuer Swap Provider and the
         Series 4 Class C Second Issuer Swap Provider;

         "EURO CURRENCY SWAP PROVIDER DEFAULT" means the occurrence of an Event
         of Default (as defined in the Euro Currency Swap Agreements) where the
         Euro Currency Swap Provider is the Defaulting Party;

         "EURO INTEREST DETERMINATION DATE" means two TARGET Business Days
         before the first day of the Interest Period for which the rate will
         apply;

         "EVENT OF DEFAULT" means an event of default pursuant to CONDITION 9 of
         the Second Issuer Note Conditions;

         "EXCHANGE RATE" means the exchange rate set out in each swap
         confirmation dated on or about the Second Issuer Closing Date to the
         Currency Swap Agreements;

         "EXTRAORDINARY RESOLUTION" has the meaning set out in PARAGRAPH 23 of
         SCHEDULE 4 to the Second Issuer Trust Deed;

         "FINAL MATURITY DATE" means in respect of:

         (a)  the Series 1 Class A Second Issuer Notes, the Interest Payment
              Date falling in March 2004;

         (b)  the Series 2 Class A Second Issuer Notes, the Interest Payment
              Date falling in September 2007;

         (c)  the Series 3 Class A Second Issuer Notes, the Interest Payment
              Date falling in December 2032;

         (d)  the Series 4 Class A Second Issuer Notes, the Interest Payment
              Date falling in December 2009;

         (e)  the Series 5 Class A Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (f)  the Series 1 Class B Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (g)  the Series 2 Class B Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (h)  the Series 3 Class B Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (i)  the Series 4 Class B Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (j)  the Series 5 Class B Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

<PAGE>
                                       7

         (k)  the Series 1 Class C Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (l)  the Series 2 Class C Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (m)  the Series 3 Class C Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         (n)  the Series 4 Class C Second Issuer Notes, the Interest Payment
              Date falling in June 2042; and

         (o)  the Series 5 Class C Second Issuer Notes, the Interest Payment
              Date falling in June 2042;

         "FINAL REDEMPTION" means the date on which all moneys and other
         liabilities for the time being due or owing by the Second Issuer to the
         Note Trustee on behalf of the Noteholders have been paid in full;

         "FINAL REPAYMENT DATE" means in respect of:

         (a)  the Second Issuer Series 1 Term AAA Advance, the Interest Payment
              Date falling in March 2004;

         (b)  the Second Issuer Series 2 Term AAA Advances, the Interest
              Payment Date falling in September 2007;

         (c)  the Second Issuer Series 3 Term AAA Advances, the Interest
              Payment Date falling in December 2032;

         (d)  the Second Issuer Series 4 Term AAA Advance, the Interest Payment
              Date falling in December 2009;

         (e)  the Second Issuer Series 5 Term AAA Advance, the Interest Payment
              Date falling in June 2042;

         (f)  the Second Issuer Series 1 Term AA Advance, the Interest Payment
              Date falling in June 2042;

         (g)  the Second Issuer Series 2 Term AA Advance, the Interest Payment
              Date falling in June 2042;

         (h)  the Second Issuer Series 3 Term AA Advance, the Interest Payment
              Date falling in June 2042;

         (i)  the Second Issuer Series 4 Term AA Advance, the Interest Payment
              Date falling in June 2042;

         (j)  the Second Issuer Series 5 Term AA Advance, the Interest Payment
              Date falling in June 2042;

<PAGE>
                                       8

         (k)  the Second Issuer Series 1 Term BBB Advance, the Interest Payment
              Date falling in June 2042;

         (l)  the Second Issuer Series 2 Term BBB Advance, the Interest Payment
              Date falling in June 2042;

         (m)  the Second Issuer Series 3 Term BBB Advance, the Interest Payment
              Date falling in June 2042;

         (n)  the Second Issuer Series 4 Term BBB Advance, the Interest Payment
              Date falling in June 2042; and

         (o)  the Second Issuer Series 5 Term BBB Advance, the Interest Payment
              Date falling in June 2042;

         "FINANCIAL ADVISER" means any financial adviser selected by the
         Security Trustee to give such financial advice in relation to the
         Second Issuer Notes as the Security Trustee may request from time to
         time;

         "FINANCIAL PERIOD" means a Financial Year or any other period in
         respect of which accounts are required to be prepared and certified by
         the auditors of the relevant company to enable it to comply with all
         relevant legal and accounting requirements and all requirements of any
         stock exchange on which are securities of the company are listed;

         "FINANCIAL YEAR" means, in the case of the Second Issuer, each
         twelve-month period ending on the last day of the calendar year;

         "FITCH" means Fitch Ratings Limited;

         "FUNDING 1 CORPORATE SERVICES PROVIDER" means Structured Finance
         Management Limited or such other person or persons for the time being
         acting as corporate services provider to Funding 1, Holdings and the
         Post-Enforcement Call Option Holder under the Funding 1 Corporate
         Services Agreement;

         "FUNDING 1 CORPORATE SERVICES AGREEMENT" means in respect of Holdings,
         Funding 1 and the Post-Enforcement Call Option Holder, the agreement
         dated the Initial Closing Date and made between the Funding 1 Corporate
         Services Provider, Holdings, Funding 1, the Post-Enforcement Call
         Option Holder, the Seller and the Security Trustee for the provision by
         the Corporate Services Provider of certain corporate services and
         personnel to Funding 1, Holdings and the Post-Enforcement Call Option
         Holder (as the same may be amended and/or supplemented from time to
         time);

         "FSMA 2000" or "FSMA" means the Financial Services and Market Act 2000
         (as amended from time to time);

         "GLOBAL SECOND ISSUER NOTES" means the global notes issued in respect
         of the Second Issuer Notes, initially in the form of the Dollar Global
         Second Issuer Notes and the Reg S Global Second Issuer Notes;

<PAGE>
                                       9

         "HOLDINGS" means Permanent Holdings Limited (registered number
         4267664), a limited company incorporated under the laws of England and
         Wales, whose registered office is at Blackwell House, Guildhall Yard,
         London EC2V 5AE;

         "ICTA" means the Income and Corporation Taxes Act 1988;

         "INDEPENDENT CERTIFICATES" means certificates of independent parties
         furnished by the Second Issuer to the Note Trustee and/or the Security
         Trustee (as appropriate) and in accordance with sections 314(c) and
         314(d)(1) of the Trust Indenture Act;

         "INITIAL CLOSING DATE" means 14th June, 2002;

         "INITIAL RELEVANT SCREEN RATE" means:

         (a)  in respect of the Series 1 Class A Second Issuer Notes, the
              linear interpolation of the arithmetic mean of the offered
              quotations to leading banks for one-month Dollar deposits and the
              arithmetic mean of the offered quotations to leading banks for
              two-month Dollar deposits and in respect of the Series 1 Class B
              Second Issuer Notes, the Series 1 Class C Second Issuer Notes,
              the Series 2 Second Issuer Notes and the Series 4 Second Issuer
              Notes, the linear interpolation of the arithmetic mean of the
              offered quotations to leading banks for three-month Dollar
              deposits and the arithmetic mean of the offered quotations to
              leading banks for four-month Dollar deposits (rounded upwards, if
              necessary, to five decimal places), displayed on the Moneyline
              Telerate Monitor at Moneyline Telerate Page No. 3750 (or such
              replacement page on that service which displays the information)
              or, if that service ceases to display the information, such other
              screen service as may be determined by the Second Issuer with the
              approval of the Note Trustee;

         (b)  in respect of the Series 3 Second Issuer Notes, the Series 4
              Class B Second Issuer Notes and the Series 4 Class C Second
              Issuer Notes, the linear interpolation of the arithmetic mean of
              the offered quotations to prime banks for three-month Euro
              deposits and the arithmetic mean of the offered quotations to
              prime banks for three-month Euro deposits (rounded upwards, if
              necessary, to 5 decimal places), displayed on the Moneyline
              Telerate monitor at Moneyline Telerate page number 248 (or such
              replacement page on that service which displays the information)
              or, if that service ceases to display the information, such other
              screen service as may be determined by the Second Issuer with the
              approval of the Note Trustee; or

         (c)  in respect of the Series 5 Second Issuer Notes, the linear
              interpolation of the arithmetic mean of the offered quotations to
              leading banks for three-month Sterling deposits and the
              arithmetic mean of the offered quotations to leading banks for
              four-month Sterling deposits (rounded upwards, if necessary, to 5
              decimal places), displayed on the Moneyline Telerate monitor at
              Moneyline Telerate page number 3750 (or such replacement page on
              that service which displays the information) or, if that service
              ceases to display the information, such other screen service as
              may be determined by the Second Issuer with the approval of the
              Note Trustee;

         "INTERCOMPANY LOAN TERMS AND CONDITIONS" means the standard terms and
         conditions incorporated into the Second Issuer Intercompany Loan
         Agreement and signed for the purposes of identification by the Security
         Trustee, the Agent Bank and Funding 1 on the Initial Closing Date;

<PAGE>
                                       10

         "INTEREST AMOUNT" means the amount of interest payable on each Second
         Issuer Note in respect of the relevant Interest Period;

         "INTEREST DETERMINATION DATE" has the meaning given to it in Condition
         4(C) of the Second Issuer Notes;

         "INTEREST PAYMENT DATE" means, as applicable, a Quarterly Interest
         Payment Date and/or a Series 1 Class A Interest Payment Date;

         "INTEREST PERIOD" means:

         (a)  in respect of interest payments made in respect of the Second
              Issuer Notes (other than the Series 1 Class A Second Issuer Notes
              the period from (and including) a Quarterly Interest Payment Date
              (or in respect of the first Interest Period, the Second Issuer
              Closing Date) to (but excluding) the next following (or first)
              Quarterly Interest Payment Date; and

         (b)  in respect of the Series 1 Class A Second Issuer Notes, the
              period from (and including) a Series 1 Class A Interest Payment
              Date (or in respect of the first interest period, the Second
              Issuer Closing Date) to (but excluding) the next following (or
              first) Series 1 Class A Interest Payment Date, except that
              following the occurrence of a Trigger Event or the enforcement of
              the Second Issuer Security in accordance with the Second Issuer
              Deed of Charge, the Interest Period for the Series 1 Class A
              Second Issuer Notes will be the quarterly period from (and
              including) the 10th day of the following earliest to occur of
              September, December, March and June (or, if such day is not a
              Business Day, the next succeeding Business Day) to (but
              excluding) the 10th day of the then next to occur of September,
              December, March and June (or, if such day is not a Business Day,
              the next succeeding Business Day) and thereafter will be the
              quarterly period from (and including) the 10th day of September,
              December, March and June to (but excluding) the next following
              10th day of September, December, March and June;

         "ISSUER ORDER" means a written order or request signed in the name of
         the Second Issuer by two directors of the Second Issuer;

         "ISSUER'S CERTIFICATE" means a certificate signed in the name of the
         Second Issuer by two directors of the Second Issuer;

         "JOINT LEAD MANAGERS" means JPMorgan Securities Ltd. and Lehman
         Brothers International (Europe);

         "LETTER OF REPRESENTATIONS" means the letter of representations to DTC
         dated on or about the Second Issuer Closing Date from the Principal
         Paying Agent and the Second Issuer;

         "LONDON BUSINESS DAY" means a day (other than a Saturday or Sunday) on
         which banks are generally open for business (including dealings in
         foreign currency) in London;

         "LONDON STOCK EXCHANGE" means the London Stock Exchange plc;

         "MANAGERS" means JPMorgan Securities Ltd. and Lehman Brothers
         International (Europe) in respect of [the Series 3 Second Issuer Notes,
         the Series 4 Class B Second Issuer Notes, the

<PAGE>
                                       11

         Series 4 Class C Second Issuer Notes and the Series 5 Second Issuer
         Notes] and Credit Suisse First Boston (Europe) Limited and Deutsche
         Bank AG London in respect of [the Series 3 Class A Second Issuer Notes
         and the Series 5 Class A Second Issuer Notes];

         "MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE" means the Amended and
         Restated Master Definitions and Construction Schedule signed for the
         purposes of identification by Allen & Overy and Sidley Austin Brown &
         Wood on or about the Second Issuer Closing Date, as the same may be
         further amended, restated and supplemented from time to time;

         "NEW YORK BUSINESS DAY" means a day (other than a Saturday or a Sunday)
         on which banks are generally open for business (including dealings in
         foreign currency) in the city of New York;

         "NOTE DETERMINATION DATE" means two Business Days prior to each
         Interest Payment Date;

         "NOTE EVENT OF DEFAULT" means an event of default pursuant to Condition
         9 of the Second Issuer Notes;

         "NOTE PRINCIPAL PAYMENT" means the amount of each principal payment
         payable on each Note;

         "NOTE TRUSTEE" means in relation to the Second Issuer and the Second
         Issuer Trust Deed, U.S. Bank National Association at 1 Federal Street,
         3rd Floor, Boston, Massachusetts 02110 acting as Note Trustee under the
         terms of the Second Issuer Trust Deed or such other person as may from
         time to time be appointed as Note Trustee (or co-trustee) pursuant to
         the Second Issuer Trust Deed;

         "NOTEHOLDERS" means the holders for the time being of the Second Issuer
         Notes;

         "NOTICE" means, in respect of notice being given to the Noteholders, a
         notice duly given in accordance with Condition 14 of the Second Issuer
         Notes;

         "OFFICERS' CERTIFICATE" means an officers certificate furnished by the
         Second Issuer to the Note Trustee and/or the Security Trustee (as
         appropriate) and complying with the provisions of Section 314 of the
         Trust Indenture Act;

         "ONE-MONTH USD-LIBOR" means the London Interbank Offered Rate for
         dollar deposits, as determined by the Agent Bank on the following
         basis:

         (a)  on the applicable Dollar Interest Determination Date applicable
              to the Series 1 Class A Second Issuer Notes, the Agent Bank will
              determine the arithmetic mean, rounded upwards to five decimal
              places, of the offered quotations to leading banks in the London
              inter-bank market for dollar deposits for one-month dollar
              deposits. The One-Month USD-LIBOR for the first Interest Period
              shall be the linear interpolation of the arithmetic mean of such
              offered quotations for the one-month and two-month dollar
              deposits.

<PAGE>
                                       12

              This will be determined by reference to the display as quoted on
              the Moneyline Telerate Screen No. 3750 or, if the Moneyline
              Telerate Screen No. 3750 stops providing these quotations, the
              replacement service for the purposes of displaying this
              information will be used. If the replacement service stops
              displaying the information, another page as determined by the
              Second Issuer with the approval of the Note Trustee will be used.

              In each of these cases, the determination will be made as at or
              about 11.00 a.m., London time, on that date;

         (b)  if, on any such Dollar Interest Determination Date, the screen
              rate is unavailable, the Agent Bank will:

              (1)  request the principal London office of each of the Reference
                   Banks to provide the Agent Bank with its offered quotation
                   to leading banks for dollar deposits of the equivalent
                   amount and for the relevant period, in the London inter-bank
                   market as at or about 11.00 a.m. (London time); and

              (2)  calculate the arithmetic mean, rounded upwards to five
                   decimal places, of those quotations;

         (c)  if, on any such Dollar Interest Determination Date, the screen
              rate is unavailable and only two or three of the Reference Banks
              provide offered quotations, the relevant rate for that Interest
              Period will be the arithmetic mean of the quotations as
              calculated in paragraph (b); and

         (d)  if, on any such Dollar Interest Determination Date, fewer than
              two Reference Banks provide quotations, the Agent Bank will
              consult with the Note Trustee and the Second Issuer for the
              purpose of agreeing a total of two banks to provide such
              quotations and the relevant rate for that Interest Period will be
              the arithmetic mean of the quotations as calculated in paragraph
              (b). If no such banks are agreed then the relevant rate for that
              Interest Period will be the rate in effect for the last preceding
              Interest Period for which paragraph (a) or (b) was applicable;

         "OPINION OF COUNSEL" means an opinion of counsel furnished by the
         Second Issuer to the Note Trustee and/or the Security Trustee (as
         appropriate) and complying with the provisions of Section 314 of the
         Trust Indenture Act;

         "OPTION" has the meaning given to it in CLAUSE 2.2 of the Second Issuer
         Post-Enforcement Call Option Agreement;

         "OPTION EXERCISE DATE" has the meaning ascribed to that expression in
         Condition 10 of the Second Issuer Notes and CLAUSE 2.1 of the Second
         Issuer Post-Enforcement Call Option Agreement;

         "PAYING AGENTS" means the Principal Paying Agent and the US Paying
         Agent;

         "POOL FACTOR" has the meaning given to it in Condition 5(C) of the
         Second Issuer Notes;

<PAGE>
                                       13

         "POST-ENFORCEMENT CALL OPTION HOLDER" means Permanent PECOH Limited
         (registered number 4267666), a limited company incorporated under the
         laws of England and Wales, whose registered office is at Blackwell
         House, Guildhall Yard, London EC2V 5AE;

         "POTENTIAL NOTE EVENT OF DEFAULT" has the same meaning as "POTENTIAL
         SECOND ISSUER EVENT OF DEFAULT";

         "POTENTIAL SECOND ISSUER EVENT OF DEFAULT" or "POTENTIAL SECOND ISSUER
         NOTE EVENT OF DEFAULT" means any condition, event or act which with the
         lapse of time and/or the giving of any notice would constitute a Second
         Issuer Event of Default;

         "PRINCIPAL AMOUNT OUTSTANDING" has the meaning set out in Condition
         5(C) of the Second Issuer Notes;

         "PRINCIPAL PAYING AGENT" means Citibank, N.A. London Branch of 5
         Carmelite Street, London EC4Y 0PA in its capacity as principal paying
         agent in the United Kingdom pursuant to the Second Issuer Paying Agent
         and Agent Bank Agreement;

         "PROSPECTUS" means the prospectus dated [27th February] in relation to
         the issue of the Second Issuer Notes;

         "QUARTERLY INTEREST PAYMENT DATE" means in respect of the Second Issuer
         Notes (other than the Series 1 Class A Second Issuer Notes) the 10th
         day of March, June, September and December in each year (or, if such
         day is not a Business Day, the next succeeding Business Day);

         "RATE OF INTEREST" has the meaning given in Condition 4(C) of the
         Second Issuer Notes;

         "RATING AGENCIES" means Standard & Poor's Rating Services, a division
         of the McGraw-Hill Companies Inc., Moody's Investors Service Limited
         and Fitch Ratings Ltd.;

         "RECEIVER" means any person or persons appointed (and any additional
         person or persons appointed or substituted) as an administrative
         receiver, receiver, manager, or receiver and manager of the Second
         Issuer Charged Property by the Security Trustee pursuant to the Second
         Issuer Deed of Charge;

         "RECORD DATE" in respect of the Definitive Second Issuer Notes means
         the 15th day prior to each Interest Payment Date;

         "REFERENCE BANKS" means the Initial Reference Banks (as defined in
         Condition 4(H) of the Second Issuer Notes) and/or such other bank as
         may be appointed pursuant to Condition 4(H) of the Second Issuer Notes;

         "REG S" means Regulation S under the United States Securities Act of
         1933, as amended;

         "REG S DEFINITIVE SECOND ISSUER NOTES" are, where Definitive Second
         Issuer Notes are issued, the Second Issuer Notes issued by the Second
         Issuer in exchange for the beneficial interests represented by the Reg
         S Global Second Issuer Note of each class;

<PAGE>
                                       14

         "REG S GLOBAL SECOND ISSUER NOTES" means the Series 3 Global Second
         Issuer Notes, the Series 4 Class B Second Issuer Notes, the Series 4
         Class C Second Issuer Notes and the Series 5 Global Second Issuer
         Notes;

         "REGISTER" means the register of noteholders kept by the Registrar and
         which records the identity of each Second Issuer Noteholder and the
         number of Second Issuer Notes which each Second Issuer Noteholder owns;

         "REGISTRAR" means Citibank, N.A. London Branch of 5 Carmelite Street,
         London EC4Y 0PA in its capacity as the registrar appointed by the
         Second Issuer under the Second Issuer Paying Agent and Agent Bank
         Agreement to record the holders of Second Issuer Notes;

         "REGULATIONS" means as the context may require either (i) the Unfair
         Terms in Consumer Contracts Regulations 1999 and/or, as applicable, the
         Unfair Terms in Consumer Contracts Regulations 1994 or (ii) the
         Regulations set out in SCHEDULE 2 to the Second Issuer Paying Agent and
         Agent Bank Agreement;

         "RELEVANT SECOND ISSUER NOTES" has the meaning given in CLAUSE 2.2 of
         the Second Issuer Post-Enforcement Call Option Agreement;

         "RELEVANT MARGIN" means:

         (a)  in respect of the Series 1 Class A Second Issuer Notes, o per
              cent. per annum;

         (b)  in respect of the Series 1 Class B Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (c)  in respect of the Series 1 Class C Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (d)  in respect of the Series 2 Class A Second Issuer Notes, o per
              cent. per annum;

         (e)  in respect of the Series 2 Class B Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (f)  in respect of the Series 2 Class C Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (g)  in respect of the Series 3 Class A Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (h)  in respect of the Series 3 Class B Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

<PAGE>
                                       15

         (i)  in respect of the Series 3 Class C Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (j)  in respect of the Series 4 Class A Second Issuer Notes, o per
              cent. per annum ;

         (k)  in respect of the Series 4 Class B Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (l)  in respect of the Series 4 Class C Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (m)  in respect of the Series 5 Class A Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         (n)  in respect of the Series 5 Class B Second Issuer Notes, o per
              cent. per annum up to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum; and

         (o)  in respect of the Series 5 Class C Second Issuer Notes, o per
              cent. per annum to and including the Interest Period ending in
              December 2008 and thereafter o per cent. per annum;

         "RELEVANT SCREEN RATE" means:

         (a)  in respect of the first Interest Period, the Initial Relevant
              Screen Rate; and

         (b) (i)   in respect of subsequent Interest Periods in respect of the
                   Series 1 Class A Second Issuer Notes, the arithmetic mean of
                   the offered quotations to leading banks for one-month Dollar
                   deposits in the London inter-bank market displayed on the
                   Moneyline Telerate Monitor at Moneyline Telerate page number
                   3750;

             (ii)  in respect of subsequent Interest Periods in respect of the
                   Series 1 Class B Second Issuer Notes, the Series 1 Class C
                   Second Issuer Notes, the Series 2 Second Issuer Notes and
                   the Series 4 Class A Second Issuer Notes, the arithmetic
                   mean of the offered quotations to leading banks for
                   three-month Dollar deposits in the London inter-bank market
                   displayed on the Moneyline Telerate Monitor at Moneyline
                   Telerate Page No. 3750;

             (iii) in respect of subsequent Interest Periods in respect of the
                   Series 5 Second Issuer Notes, the arithmetic mean of offered
                   quotations to prime banks for three-month Sterling deposits
                   in the London inter-bank market displayed on the Moneyline
                   Telerate Monitor at Moneyline Telerate Page No. 3750;

             (iv)  in respect of subsequent Interest Periods in respect of the
                   Series 3 Second Issuer Notes, the Series 4 Class B Second
                   Issuer Notes and the Series 4 Class C Second Issuer Notes,
                   the arithmetic mean of offered quotations to prime

<PAGE>
                                       16

                   banks for [three-month] Euro deposits in the Euro-zone
                   inter-bank market displayed on the Moneyline Telerate
                   Monitor at Moneyline Telerate Page No. 248; and

         in each case, displayed on the above-mentioned page of the
         Dow-Jones/Telerate Monitor (or such replacement page on that service
         which displays the information) or, if that service ceases to display
         the information, such other screen service as may be determined by the
         Second Issuer with the approval of the Note Trustee (rounded upwards,
         if necessary, to five decimal places);

         "REPAYMENT DATE" means the earlier to occur of (a) the date when the
         Notes have been redeemed in full and (b) the Funding 1 Interest Payment
         Date in [December 2008];

         "REQUISITE RATINGS" means a rating of P-1 by Moody's, F1+ by Fitch and
         A-1+ by Standard & Poor's;

         "SCHEDULED AMORTISATION INSTALMENT" means:

         (a)  in respect of the Second Issuer Series 3 Term Advance, the
              repayments of principal due on [March 2006] and[June 2006], being
              the Scheduled Repayment Dates of the Second Issuer Series 3 Term
              Advance; or

         (b)  in respect of any New Term Advance which is a Scheduled
              Amortisation Term Advance, the repayments of principal due each
              of the Scheduled Repayments Dates of that Scheduled Amortisation
              Term Advance;

         "SCHEDULED AMORTISATION TERM ADVANCE" means the Second Issuer Series 3
         Term Advance and any New Term Advance that is referred to as such in
         the relevant offering document or propsectus relating to any New
         Issuer;

         "SCHEDULED PRINCIPAL REPAYMENT" means, in respect of the Second Issuer
         Term AAA Advances, the Second Issuer Term AA Advances, the Second
         Issuer Term BBB Advances, or any New Term Advance, the amount of
         principal, if any, scheduled to be repaid in respect of such advance on
         the relevant Scheduled Repayment Date;

         "SCHEDULED REDEMPTION DATES" means:

         (a)  in respect of the Series 1 Class A Second Issuer Notes, the
              Interest Payment Date in March 2004;

         (b)  in respect of the Series 2 Class A Second Issuer Notes, the
              Interest Payment Date in September 2005;

         (c)  in respect of the Series 3 Class A Second Issuer Notes, the
              Interest Payment Dates in March 2006 and June 2006; and

         (d)  in respect of the Series 4 Class A Second Issuer Notes, the
              Interest Payment Date in December 2007;

<PAGE>
                                       17

         "SCHEDULED REPAYMENT DATES" means:

         (a)  in respect of the Second Issuer Series 1 Term AAA Advance, the
              Interest Payment Date in March 2004;

         (b)  in respect of the Second Issuer Series 2 Term AAA Advances, the
              Interest Payment Date in September 2005;

         (c)  in respect of the Second Issuer Series 3 Term AAA Advance, the
              Interest Payment Dates in March 2006 and June 2006;

         (d)  in respect of the Second Issuer Series 4 Term AAA Advance, the
              Interest Payment Date in December 2007;

         (e)  in respect of any New Term Advance which is intended to be a
              Bullet Term Advance, the Scheduled Repayment Date of that Bullet
              Term Advance; and

         (f)  in respect of any New Term Advance which is intended to be a
              Scheduled Amortisation Term Advance, the Scheduled Repayment
              Dates for each of the Scheduled Amortisation Instalments under
              such Scheduled Amortisation Term Advance;

         "SECOND ISSUER" means Permanent Financing (No. 2) PLC (registered no.
         4623188), a public limited company incorporated under the laws of
         England and Wales, whose registered office is at Blackwell House,
         Guildhall Yard, London EC2V 5AE;

         "SECOND ISSUER ACCOUNT BANK" means The Governor and Company of the Bank
         of Scotland, in its capacity as holder of the Second Issuer Transaction
         Account, situated at 116 Wellington Street, Leeds LS1 4LT and such
         other account bank as may be appointed from time to time pursuant to
         the Second Issuer Bank Account Agreement;

         "SECOND ISSUER ACCOUNTS" means the Second Issuer Transaction Account
         and such other bank account(s) held in the name of the Second Issuer
         with the prior written approval of the Security Trustee from time to
         time;

         "SECOND ISSUER AVAILABLE FUNDS" means together Second Issuer Revenue
         Receipts and Second Issuer Principal Receipts;

         "SECOND ISSUER BANK ACCOUNT AGREEMENT" means the bank account agreement
         dated on or about the Second Issuer Closing Date between the Second
         Issuer, the Second Issuer Cash Manager, the Second Issuer Account Bank
         and the Security Trustee (as the same may be amended and/or
         supplemented from time to time);

         "SECOND ISSUER BANK ACCOUNTS" has the same meaning as "SECOND ISSUER
         ACCOUNTS";

         "SECOND ISSUER BULLET TERM ADVANCES" means the Second Issuer Series 1
         Term AAA Advance, the Second Issuer Series 2 Term AAA Advance and the
         Second Issuer Series 4 Term AAA Advance;

         "SECOND ISSUER CASH MANAGEMENT AGREEMENT" means the cash management
         agreement dated on or about the Second Issuer Closing Date between the
         Second Issuer, the Second

<PAGE>
                                       18

         Issuer Cash Manager and the Security Trustee (as the same may be
         amended and/or supplemented from time to time);

         "SECOND ISSUER CASH MANAGEMENT SERVICES" means the services to be
         provided to the Second Issuer and the Security Trustee pursuant to the
         Second Issuer Cash Management Agreement;

         "SECOND ISSUER CASH MANAGER" means Halifax acting pursuant to the
         Second Issuer Cash Management Agreement as agent for the Second Issuer
         and the Security Trustee, to manage all cash transactions and maintain
         certain ledgers on behalf of the Second Issuer;

         "SECOND ISSUER CASH MANAGER TERMINATION EVENT" has the meaning given in
         CLAUSE 12.1 of the Second Issuer Cash Management Agreement;

         "SECOND ISSUER'S CERTIFICATE" means a certificate signed in the name of
         the Second Issuer by two directors of the Second Issuer;

         "SECOND ISSUER CHARGED PROPERTY" means the property charged by the
         Second Issuer pursuant to CLAUSES 3.1 to 3.4 (inclusive) of the Second
         Issuer Deed of Charge;

         "SECOND ISSUER CLOSING DATE" means[6th March], 2003;

         "SECOND ISSUER CORPORATE SERVICES AGREEMENT" means the agreement dated
         on or about the Second Issuer Closing Date and made between the Second
         Issuer Corporate Services Provider, the Second Issuer, the Seller,
         Holdings and the Security Trustee for the provision by the Corporate
         Services Provider of certain corporate services and personnel to the
         Second Issuer (as the same may be amended and/or supplemented from time
         to time);

         "SECOND ISSUER CORPORATE SERVICES FEE LETTER" means the letter dated
         the date of the Second Issuer Corporate Services Agreement between,
         inter alios, the Second Issuer, the Security Trustee, and the Second
         Issuer Corporate Services Provider, setting out the amount of fees
         payable to the Second Issuer Corporate Services Provider by the Second
         Issuer;

         "SECOND ISSUER CORPORATE SERVICES PROVIDER" means Structured Finance
         Management Limited or such other person or persons for the time being
         acting as corporate services provider to the Second Issuer under the
         Second Issuer Corporate Services Agreement;

         "SECOND ISSUER CURRENCY SWAP AGREEMENTS" or "SECOND ISSUER SWAP
         AGREEMENTS" means the Dollar Currency Swap Agreements and the Euro
         Currency Swap Agreements;

         "SECOND ISSUER DEED OF CHARGE" means the deed of charge to be entered
         into on or about the Second Issuer Closing Date between, among others,
         the Second Issuer and the Security Trustee under which the Second
         Issuer charges the Second Issuer Security in favour of the Security
         Trustee for the benefit of the Second Issuer Secured Creditors (as the
         same may be amended and/or supplemented from time to time);

         "SECOND ISSUER EVENT OF DEFAULT" has the meaning given to it in
         Condition 9 of the Second Issuer Notes;

<PAGE>
                                       19

         "SECOND ISSUER INTERCOMPANY LOAN" means the loan of the Second Issuer
         Term Advances made by the Second Issuer to Funding 1 under the Second
         Issuer Intercompany Loan Agreement on or about the Second Issuer
         Closing Date;

         "SECOND ISSUER INTERCOMPANY LOAN ACCELERATION NOTICE" means an
         acceleration notice served by the Security Trustee in relation to the
         enforcement of the Funding 1 Security following a Second Issuer
         Intercompany Loan Event of Default under the Second Issuer Intercompany
         Loan;

         "SECOND ISSUER INTERCOMPANY LOAN AGREEMENT" means the Second Issuer
         Intercompany Loan Confirmation and the Intercompany Loan Terms and
         Conditions together entered into on or about the Second Issuer Closing
         Date by the Second Issuer, Funding 1, the Security Trustee and the
         Agent Bank (as the same may be amended and/or supplemented from time to
         time);

         "SECOND ISSUER INTERCOMPANY LOAN CONFIRMATION" means the loan
         confirmation in respect of the Second Issuer Intercompany Loan
         Agreement entered into on or about the Second Issuer Closing Date and
         made between Funding 1, the Second Issuer and the Security Trustee;

         "SECOND ISSUER INTERCOMPANY LOAN DETERMINATION DATE" means the date
         falling two Business Days prior to each Funding 1 Interest Payment
         Date;

         "SECOND ISSUER INTERCOMPANY LOAN EVENT OF DEFAULT" means the occurrence
         of an event of default by Funding 1 as specified in CLAUSE 14 of the
         Second Issuer Intercompany Loan Terms and Conditions;

         "SECOND ISSUER INTERCOMPANY LOAN LEDGER" means the ledger maintained by
         the Second Issuer Cash Manager which will record payments of interest
         and repayments of principal made on each of the Term Advances on each
         Interest Payment Date under the Second Issuer Intercompany Loan
         Agreement;

         "SECOND ISSUER INTERCOMPANY LOAN TERMS AND CONDITIONS" means the
         Intercompany Loan Terms and Conditions;

         "SECOND ISSUER MASTER DEFINITIONS AND CONSTRUCTION SCHEDULE" means this
         Second Issuer Master Definitions and Construction Schedule signed for
         the purposes of identification by Allen & Overy and Sidley Austin Brown
         & Wood on or about the Second Issuer Closing Date, as the same may be
         amended, restated and supplemented from time to time;

         "SECOND ISSUER NON-STERLING ACCOUNT" means a dollar account and/or a
         euro account, in each case to be opened in the name of the Second
         Issuer and to be held with the Second Issuer Non-Sterling Account Bank
         in accordance with the Second Issuer Bank Account Agreement;

         "SECOND ISSUER NON-STERLING ACCOUNT BANK" means The Governor and
         Company of the Bank of Scotland, in its capacity as holder of the
         relevant Second Issuer Non-Sterling Account, in accordance with the
         Second Issuer Bank Account Agreement;

         "SECOND ISSUER NOTE DETERMINATION DATE" means two Business Days prior
         to each Interest Payment Date;

<PAGE>
                                       20

         "SECOND ISSUER NOTE ACCELERATION NOTICE" means a Class A Second Issuer
         Note Acceleration Notice, a Class B Second Issuer Note Acceleration
         Notice or a Class C Second Issuer Note Acceleration Notice, either
         alone or together;

         "SECOND ISSUER NOTE EVENT OF DEFAULT" an event of default by the Second
         Issuer as defined in Condition 9 of the Second Issuer Notes;

         "SECOND ISSUER NOTEHOLDERS" means the holders for the time being of the
         Second Issuer Notes;

         "SECOND ISSUER NOTES" means the Class A Second Issuer Notes, the Class
         B Second Issuer Notes and the Class C Second Issuer Notes;

         "SECOND ISSUER PAYING AGENT AND AGENT BANK AGREEMENT" means the paying
         agent and agent bank agreement entered into on or about the Second
         Issuer Closing Date between the Second Issuer, the Principal Paying
         Agent, the Agent Bank, the US Paying Agent, the Registrar, the Transfer
         Agent and the Security Trustee which sets out the appointment of the
         Paying Agents, the Registrar, the Transfer Agent and the Agent Bank for
         the Second Issuer Notes (as the same may be amended and/or supplemented
         from time to time);

         "SECOND ISSUER POST-ENFORCEMENT CALL OPTION AGREEMENT" means the
         post-enforcement call option agreement entered into on or about the
         Second Issuer Closing Date between the Second Issuer, the
         Post-Enforcement Call Option Holder and the Security Trustee under
         which the Note Trustee agrees on behalf of the holders of the Class B
         Second Issuer Notes and the Class C Second Issuer Notes that following
         enforcement of the Second Issuer Security, the Post-Enforcement Call
         Option Holder may call for the Class B Second Issuer Notes and the
         Class C Second Issuer Notes (as the same may be amended and/or
         supplemented from time to time);

         "SECOND ISSUER POST-ENFORCEMENT PRIORITY OF PAYMENTS" means the order
         of priority of payments in which the Second Issuer Revenue Receipts and
         the Second Issuer Principal Receipts will be applied following the
         service of a Second Issuer Note Acceleration Notice and a Second Issuer
         Intercompany Loan Acceleration Notice, as set out in Clause 6.4 of the
         Second Issuer Deed of Charge;

         "SECOND ISSUER PRE-ENFORCEMENT PRINCIPAL PRIORITY OF PAYMENTS" means
         the order of priority of payments in which the Second Issuer Principal
         Receipts will be applied until enforcement of the Second Issuer
         Security and as set out in Schedule 2 to the Second Issuer Cash
         Management Agreement;

         "SECOND ISSUER PRE-ENFORCEMENT PRIORITY OF PAYMENTS" means the Second
         Issuer Pre-Enforcement Principal Priority of Payments and the Second
         Issuer Pre-Enforcement Revenue Priority Payments;

         "SECOND ISSUER PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS" means the
         order of priority of payments in which the Second Issuer Revenue
         Receipts will be applied until enforcement of the Second Issuer
         Security and as set out in Schedule 2 to the Second Issuer Cash
         Management Agreement;

         "SECOND ISSUER PRINCIPAL RECEIPTS" means the sum of all principal
         amounts repaid by Funding 1 to the Second Issuer under the terms of the
         Second Issuer Intercompany Loan

<PAGE>
                                       21

         Agreement during the relevant Interest Period, as calculated by the
         Second Issuer Cash Manager four Business Days prior to each Interest
         Payment Date;

         "SECOND ISSUER REVENUE RECEIPTS" means on the date which is four
         Business Days prior to an Interest Payment Date, an amount equal to the
         aggregate of:

         (a)  interest paid by Funding 1 on the relevant Funding 1 Interest
              Payment Date in respect of the Term Advances under the terms of
              the Second Issuer Intercompany Loan Agreement;

         (b)  fees to be paid to the Second Issuer by Funding 1 on the relevant
              Funding 1 Interest Payment Date under the terms of the Second
              Issuer Intercompany Loan Agreement;

         (c)  interest payable on the Second Issuer Bank Accounts and any
              Authorised Investments which will be received on or before the
              relevant Interest Payment Date in respect of the Second Issuer
              Notes;

         (d)  other net income of the Second Issuer including amounts received
              or to be received under the Second Issuer Swap Agreements on or
              before the relevant Interest Payment Date; and

         (e)  if the Second Issuer receives any additional amount from a Second
              Issuer Swap Provider pursuant to section 2(d)(i)(4) of any Second
              Issuer Swap Agreement, and the Second Issuer subsequently
              receives a refund from the relevant taxing authority in respect
              of that additional amount (so that the Second Issuer receives a
              windfall) (for the purposes of this definition, a "REFUND
              PAYMENT"), an amount equal to that Refund Payment;

         "SECOND ISSUER SCHEDULED AMORTISATION TERM ADVANCE" means the Second
         Issuer Series 3 Term AAA Advance;

         "SECOND ISSUER SECURED CREDITORS" means those parties to the Second
         Issuer Deed of Charge who have the benefit of the Second Issuer
         Security being the Security Trustee, the Currency Swap Providers, the
         Note Trustee, the Second Issuer Account Bank, the Paying Agents, the
         Registrar, the Transfer Agent, the Agent Bank, the Corporate Services
         Provider, the Second Issuer Cash Manager and the Second Issuer
         Noteholders;

         "SECOND ISSUER SECURED OBLIGATIONS" means any and all of the moneys and
         liabilities which the Second Issuer covenants to pay or discharge under
         CLAUSE 2 of the Second Issuer Deed of Charge and all other amounts owed
         by it to the Second Issuer Secured Creditors under and pursuant to the
         Transaction Documents;

         "SECOND ISSUER SECURITY" means the security granted by the Second
         Issuer under the Second Issuer Deed of Charge in favour of the Second
         Issuer Secured Creditors;

         "SECOND ISSUER SERIES 1 TERM AA ADVANCE" means the sub-loan of the
         Second Issuer Term AA Advances in the amount of Pound
         Sterling[20,671,206] and corresponding to the issue of the Series 1
         Class B Second Issuer Notes;

<PAGE>
                                       22

         "SECOND ISSUER SERIES 1 TERM AAA ADVANCE" means the sub-loan of the
         Second Issuer Term AAA Advances in the amount of Pound
         Sterling[607,976,654] and corresponding to the issue of the Series 1
         Class A Second Issuer Notes;

         "SECOND ISSUER SERIES 1 TERM ADVANCES" means the Second Issuer Series 1
         Term AAA Advance, the Second Issuer Series 1 Term AA Advance and the
         Second Issuer Series 1 Term BBB Advance;

         "SECOND ISSUER SERIES 1 TERM BBB ADVANCE" means the sub-loan of the
         Second Issuer Term BBB Advances in the amount of Pound
         Sterling[20,671,206] and corresponding to the issue of the Series 1
         Class C Second Issuer Notes;

         "SECOND ISSUER SERIES 2 TERM AA ADVANCE" means the sub-loan of the
         Second Issuer Term AA Advances in the amount of Pound
         Sterling[26,142,996] and corresponding to the issue of the Series 2
         Class B Second Issuer Notes;

         "SECOND ISSUER SERIES 2 TERM AAA ADVANCE" means the sub-loan of the
         Second Issuer Term AAA Advances in the amount of Pound
         Sterling[759,970,817] and corresponding to the issue of the Series 2
         Class A Second Issuer Notes;

         "SECOND ISSUER SERIES 2 TERM ADVANCES" means the Second Issuer Series 2
         Term AAA Advance, the Second Issuer Series 2 Term AA Advance and the
         Second Issuer Series 2 Term BBB Advance;

         "SECOND ISSUER SERIES 2 TERM BBB ADVANCE" means the sub-loan of the
         Second Issuer Term BBB Advances in the amount of Pound
         Sterling[26,142,996] and corresponding to the issue of the Series 2
         Class C Second Issuer Notes;

         "SECOND ISSUER SERIES 3 TERM AA ADVANCE" means the sub-loan of the
         Second Issuer Term AA Advances in the amount of Pound
         Sterling[28,728,127] and corresponding to the issue of the Series 3
         Class B Second Issuer Notes;

         "SECOND ISSUER SERIES 3 TERM AAA ADVANCE" means the sub-loan of the
         Second Issuer Term AAA Advances in the amount of Pound
         Sterling[816,139,984] and corresponding to the issue of the Series 3
         Class A Second Issuer Notes;

         "SECOND ISSUER SERIES 3 TERM ADVANCES" means the Second Issuer Series 3
         Term AAA Advance, the Second Issuer Series 3 Term AA Advance and the
         Second Issuer Series 3 Term BBB Advance;

         "SECOND ISSUER SERIES 3 TERM BBB ADVANCE" means the sub-loan of the
         Second Issuer Term BBB Advances in the amount of Pound
         Sterling[28,728,127] and corresponding to the issue of the Series 3
         Class C Second Issuer Notes;

         "SECOND ISSUER SERIES 4 TERM AA ADVANCE" means the sub-loan of the
         Second Issuer Term AA Advances in the amount of Pound
         Sterling[26,116,480] and corresponding to the issue of the Series 4
         Class B Second Issuer Notes;

         "SECOND ISSUER SERIES 4 TERM AAA ADVANCE" means the sub-loan of the
         Second Issuer Term AAA Advances in the amount of Pound
         Sterling[759,970,817] and corresponding to the issue of the Series 4
         Class A Second Issuer Notes;

<PAGE>
                                       23

         "SECOND ISSUER SERIES 4 TERM ADVANCES" means the Second Issuer Series 4
         Term AAA Advance, the Second Issuer Series 4 Term AA Advance and the
         Second Issuer Series 4 Term BBB Advance;

         "SECOND ISSUER SERIES 4 TERM BBB ADVANCE" means the sub-loan of the
         Second Issuer Term BBB Advances in the amount of Pound
         Sterling[26,116,480] and corresponding to the issue of the Series 4
         Class C Second Issuer Notes;

         "SECOND ISSUER SERIES 5 TERM AA ADVANCE" means the sub-loan of the
         Second Issuer Term AA Advances in the amount of Pound
         Sterling[35,000,000] and corresponding to the issue of the Series 5
         Class B Second Issuer Notes;

         "SECOND ISSUER SERIES 5 TERM AAA ADVANCE" means the sub-loan of the
         Second Issuer Term AAA Advances in the amount of Pound
         Sterling[1,000,000,000] and corresponding to the issue of the Series 5
         Class A Second Issuer Notes;

         "SECOND ISSUER SERIES 5 TERM ADVANCES" means the Second Issuer Series 5
         Term AAA Advance, the Second Issuer Series 5 Term AA Advance and the
         Second Issuer Series 5 Term BBB Advance;

         "SECOND ISSUER SERIES 5 TERM BBB ADVANCE" means the sub-loan of the
         Second Issuer Term BBB Advances in the amount of Pound
         Sterling[35,000,000] and corresponding to the issue of the Series 5
         Class C Second Issuer Notes;

         "SECOND ISSUER SWAP AGREEMENTS" means the Dollar Currency Swap
         Agreements and the Euro Currency Swap Agreements;

         "SECOND ISSUER SWAP EXCLUDED TERMINATION AMOUNT" means, in relation to
         any Second Issuer Swap Agreement, an amount equal to:

         (a)  the amount of any termination payment due and payable to the
              relevant Second Issuer Swap Provider as a result of a Second
              Issuer Swap Provider Default or to the relevant Second Issuer
              Swap Provider following a Second Issuer Swap Provider Downgrade
              Termination Event;

              less

         (b)  the amount, if any, received by the Second Issuer from a
              replacement swap provider upon entry by the Second Issuer into an
              agreement with such replacement swap provider to replace such
              Second Issuer Swap Agreement which has terminated as a result of
              such Second Issuer Swap Provider Default or following the
              occurrence of such Second Issuer Swap Provider Downgrade
              Termination Event;

         "SECOND ISSUER SWAP PROVIDER DEFAULT" means the occurrence of an Event
         of Default (as defined in the Second Issuer Swap Agreements) where a
         Second Issuer Swap Provider is the Defaulting Party;

         "SECOND ISSUER SWAP PROVIDER DOWNGRADE TERMINATION EVENT" means the
         occurrence of an additional termination event following the failure by
         a Second Issuer Swap Provider to comply with the requirements of the
         ratings downgrade provisions set out in the relevant

<PAGE>
                                       24

         Second Issuer Swap Agreement;

         "SECOND ISSUER SWAP PROVIDERS" means the Dollar Currency Swap Providers
         and the Euro Currency Swap Provider or any one of them as the context
         requires;

         "SECOND ISSUER TERM AA ADVANCES" means the Second Issuer Series 1 Term
         AA Advance, the Second Issuer Series 2 Term AA Advance, the Second
         Issuer Series 3 Term AA Advance, the Second Issuer Series 4 Term AA
         Advance and the Second Issuer Series 5 Term AA Advance;

         "SECOND ISSUER TERM AAA ADVANCES" means the Second Issuer Series 1 Term
         AAA Advance, the Second Issuer Series 2 Term AAA Advance, the Second
         Issuer Series 3 Term AAA Advance, the Second Issuer Series 4 Term AAA
         Advance and the Second Issuer Series 5 Term AAA Advance;

         "SECOND ISSUER TERM ADVANCES" means the Second Issuer Term AAA
         Advances, the Second Issuer Term AA Advances and the Second Issuer Term
         BBB Advances;

         "SECOND ISSUER TERM ADVANCES DUE DATES" means the dates being:

         (a)  in relation to the Second Issuer Series 1 Term AAA Advance, the
              Funding 1 Interest Payment Date falling in March 2004;

         (b)  in relation to the Second Issuer Series 2 Term AAA Advance, the
              Funding 1 Interest Payment Date falling in September 2005;

         (c)  in relation to the Second Issuer Series 3 Term AAA Advance, the
              Funding 1 Interest Payment Dates falling in March 2006 and June
              2006;

         (d)  in relation to the Second Issuer Series 4 Term AAA Advance, the
              Funding 1 Interest Payment Date falling in December 2007;

         (e)  in relation to the Second Issuer Series 5 Term AAA Advance, the
              Funding 1 Interest Payment Date falling in December 2008;

         (f)  in relation to the Second Issuer Series 1 Term AA Advance, the
              Funding 1 Interest Payment Date falling after the date on which
              the Second Issuer Series 1 Term AAA Advance has been fully
              repaid;

         (g)  in relation to the Second Issuer Series 2 Term AA Advance, the
              Funding 1 Interest Payment Date falling after the date on which
              the Second Issuer Series 2 Term AAA Advance has been fully
              repaid;

         (h)  in relation to the Second Issuer Series 3 Term AA Advance, the
              Funding 1 Interest Payment Date failing after the date on which
              the Second Issuer Series 3 Term AAA Advance has been fully
              repaid;

<PAGE>
                                       25

         (i)  in relation to the Second Issuer Series 4 Term AA Advance, the
              Funding 1 Interest Payment Date falling on or after the date on
              which the Second Issuer Series 4 Term AAA Advance has been fully
              repaid;

         (j)  in relation to the Second Issuer Series 5 Term AA Advance, the
              Funding 1 Interest Payment Date falling on or after the date on
              which the Second Issuer Series 5 Term AAA Advance has been fully
              repaid;

         (k)  in relation to the Second Issuer Series 1 Term BBB Advance, the
              Funding 1 Interest Payment Date falling on or after the date on
              which the Second Issuer Series 1 Term AA Advance has been fully
              repaid;

         (l)  in relation to the Second Issuer Series 2 Term BBB Advance, the
              Funding 1 Interest Payment Date falling on or after the date on
              which the Second Issuer Series 2 Term AA Advance has been fully
              repaid;

         (m)  in relation to the Second Issuer Series 3 Term BBB Advance, the
              Funding 1 Interest Payment Date falling on or after the date on
              which the Second Issuer Series 3 Term AA Advance has been fully
              repaid;

         (n)  in relation to the Second Issuer Series 4 Term BBB Advance, the
              Funding 1 Interest Payment Date failing on or after the date on
              which the Second Issuer Series 4 Term AA Advance has been fully
              repaid; and

         (o)  in relation to the Second Issuer Series 5 Term BBB Advance, the
              Funding 1 Interest Payment Date falling on or after the date on
              which the Second Issuer Series 5 Term AA Advance has been fully
              repaid.

         "SECOND ISSUER TERM BBB ADVANCES" means the Second Issuer Series 1 Term
         BBB Advance, the Second Issuer Series 2 Term BBB Advance, the Second
         Issuer Series 3 Term BBB Advance, the Second Issuer Series 4 Term BBB
         Advance and the Second Issuer Series 5 Term BBB Advance;

         "SECOND ISSUER TRANSACTION ACCOUNT" means the sterling account in the
         name of the Second Issuer (account number o, Permanent Financing (No.
         2) PLC, sort code [12-08-83]) held with the Second Issuer Account Bank
         (or such other account at such other banks as may for the time being be
         in place with the prior consent of the Security Trustee and designated
         as such;

         "SECOND ISSUER TRANSACTION ACCOUNT MANDATE" means the mandate pursuant
         to which the Second Issuer Transaction Account has been established;

         "SECOND ISSUER TRANSACTION DOCUMENTS" means those Transaction Documents
         to which the Second Issuer is a party, including the Second Issuer
         Intercompany Loan Agreement, the Second Issuer Trust Deed, the Second
         Issuer Paying Agent and Agent Bank Agreement, the Second Issuer Deed of
         Charge, the Second Issuer Cash Management Agreement, the Currency Swap
         Agreements, the Second Issuer Bank Account Agreement, the Second Issuer

<PAGE>
                                       26

         Post-Enforcement Call Option Agreement and the Second Issuer Corporate
         Services Agreement;

         "SECOND ISSUER TRUST DEED" means the trust deed entered into on or
         about the Second Issuer Closing Date between the Second Issuer and the
         Note Trustee constituting the Second Issuer Notes (as the same may be
         amended and/or supplemented from time to time);

         "SECURITIES ACT" means the United States Securities Act of 1933, as
         amended;

         "SECURITY TRUSTEE" means in relation to the Second Issuer, the Second
         Issuer Secured Creditors, the Second Issuer Deed of Charge, the Second
         Issuer Security and the Second Issuer Intercompany Loan Agreement, U.S.
         Bank National Association at 1 Federal Street, 3rd Floor, Boston,
         Massachusetts 02110 acting as Security Trustee under the terms of the
         Second Issuer 1 Deed of Charge or such other person as may from time to
         time be appointed as Security Trustee (or co-trustee) pursuant to the
         Second Issuer Deed of Charge;

         "SELLER" means Halifax plc (registered number 2367076) in its capacity
         as seller of the Loans and their Related Security to the Mortgages
         Trustee pursuant to the terms of the Mortgage Sale Agreement;

         "SENIOR LIABILITIES" means the items listed in paragraphs (a) and (c)
         to (f) of the Second Issuer Pre-Enforcement Revenue Priority of
         Payments;

         "SERIES 1 CLASS A DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 1
         Class A Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 1
         Class A Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART A of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 1 CLASS B DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 1
         Class B Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 1
         Class B Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART B of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 1 CLASS C DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 1
         Class C Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 1
         Class C Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART C of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 1 DEFINITIVE SECOND ISSUER NOTES" means the Series 1 Class A
         Definitive Second Issuer Notes, the Series 1 Class B Definitive Second
         Issuer Notes and the Series 1 Class C Definitive Second Issuer Notes;

         "SERIES 2 CLASS A DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 2
         Class A Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 2

<PAGE>
                                       27

         Class A Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART D of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 2 CLASS B DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 2
         Class B Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 2
         Class B Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART E of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 2 CLASS C DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 2
         Class C Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 2
         Class C Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART F of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 2 DEFINITIVE SECOND ISSUER NOTES" means the Series 2 Class A
         Definitive Second Issuer Notes, the Series 2 Class B Definitive Second
         Issuer Notes and the Series 2 Class C Definitive Second Issuer Notes;

         "SERIES 3 CLASS A DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 3
         Class A Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 3
         Class A Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART G of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 3 CLASS B DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 3
         Class B Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 3
         Class B Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART H of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 3 CLASS C DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 3
         Class C Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 3
         Class C Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART I of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 3 DEFINITIVE SECOND ISSUER NOTES" means the Series 3 Class A
         Definitive Second Issuer Notes, the Series 3 Class B Definitive Second
         Issuer Notes and the Series 3 Class C Definitive Second Issuer Notes;

         "SERIES 4 CLASS A DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 4
         Class A Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 4

<PAGE>
                                       28

         Class A Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART J of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 4 CLASS B DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 4
         Class B Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 4
         Class B Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART K of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 4 CLASS C DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 4
         Class C Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 4
         Class C Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART L of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 4 DEFINITIVE SECOND ISSUER NOTES" means the Series 4 Class A
         Definitive Second Issuer Notes, the Series 4 Class B Definitive Second
         Issuer Notes and the Series 4 Class C Definitive Second Issuer Notes;

         "SERIES 5 CLASS A DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 5
         Class A Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 5
         Class A Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART M of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 5 CLASS B DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 5
         Class B Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 5
         Class B Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART N of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 5 CLASS C DEFINITIVE SECOND ISSUER NOTES" means the registered
         notes in definitive form which may be issued in respect of the Series 5
         Class C Second Issuer Notes pursuant to, and in the circumstances
         specified in, Condition 1 and includes any replacement for Series 5
         Class C Definitive Second Issuer Notes issued pursuant to Condition 13
         and which are issued substantially in the form described in and set out
         in PART O of SCHEDULE 2 to the Second Issuer Trust Deed;

         "SERIES 5 DEFINITIVE SECOND ISSUER NOTES" means the Series 5 Class A
         Definitive Second Issuer Notes, the Series 5 Class B Definitive Second
         Issuer Notes and the Series 5 Class C Definitive Second Issuer Notes;

         "SERIES 1 CLASS A SECOND ISSUER NOTES" means the US$[1,000,000,000]
         series 1 class A asset backed floating rate notes due March 2004;

<PAGE>
                                       29

         "SERIES 1 CLASS B SECOND ISSUER NOTES" means the US$[34,000,000] series
         1 class B asset backed floating rate notes due June 2042;

         "SERIES 1 CLASS C SECOND ISSUER NOTES" means the US$[34,000,000] series
         1 class C asset backed floating rate notes due June 2042;

         "SERIES 2 CLASS A SECOND ISSUER NOTES" means the US$[1,250,000,000]
         series 2 class A asset backed floating rate notes due September 2007;

         "SERIES 2 CLASS B SECOND ISSUER NOTES" means the US$[43,000,000] series
         2 class B asset backed floating rate notes due June 2042;

         "SERIES 2 CLASS C SECOND ISSUER NOTES" means the US$[43,000,000] series
         2 class C asset backed floating rate notes due June 2042;

         "SERIES 3 CLASS A SECOND ISSUER NOTES" means the Euro [1,250,000,000]
         series 3 class A asset backed floating rate notes due December 2032;

         "SERIES 3 CLASS B SECOND ISSUER NOTES" means the Euro [44,000,000]
         series 3 class B asset backed floating rate notes due June 2042;

         "SERIES 3 CLASS C SECOND ISSUER NOTES" means the Euro [44,000,000]
         series 3 class C asset backed floating rate notes due June 2042;

         "SERIES 4 CLASS A SECOND ISSUER NOTES" means the US$[1,250,000,000]
         series 4 class A asset backed floating rate notes due December 2009;

         "SERIES 4 CLASS B SECOND ISSUER NOTES" means the Euro [40,000,000]
         series 4 class B asset backed floating rate notes due June 2042;

         "SERIES 4 CLASS C SECOND ISSUER NOTES" means the Euro [40,000,000]
         series 4 class C asset backed floating rate notes due June 2042;

         "SERIES 5 CLASS A SECOND ISSUER NOTES" means the Pound Sterling
         [1,000,000,000] series 5 class A asset backed floating rate notes due
         June 2042;

         "SERIES 5 CLASS B SECOND ISSUER NOTES" means the Pound Sterling
         [35,000,000] series 5 class B asset backed floating rate notes due June
         2042;

         "SERIES 5 CLASS C SECOND ISSUER NOTES" means the Pound Sterling
         [35,000,000] series 5 class C asset backed floating rate notes due June
         2042;

         "SERIES 1 CLASS A SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 1 Class A Second Issuer Notes;

         "SERIES 1 CLASS B SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 1 Class B Second Issuer Notes;

         "SERIES 1 CLASS C SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 1 Class C Second Issuer Notes;

<PAGE>
                                       30

         "SERIES 2 CLASS A SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 2 Class A Second Issuer Notes;

         "SERIES 2 CLASS B SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 2 Class B Second Issuer Notes;

         "SERIES 2 CLASS C SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 2 Class C Second Issuer Notes;

         "SERIES 3 CLASS A SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 3 Class A Second Issuer Notes;

         "SERIES 3 CLASS B SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 3 Class B Second Issuer Notes;

         "SERIES 3 CLASS C SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 3 Class C Second Issuer Notes;

         "SERIES 4 CLASS A SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 4 Class A Second Issuer Notes;

         "SERIES 4 CLASS B SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 4 Class B Second Issuer Notes;

         "SERIES 4 CLASS C SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 4 Class C Second Issuer Notes;

         "SERIES 5 CLASS A SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 5 Class A Second Issuer Notes;

         "SERIES 5 CLASS B SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 5 Class B Second Issuer Notes;

         "SERIES 5 CLASS C SECOND ISSUER NOTEHOLDERS" means the holders for the
         time being of the Series 5 Class C Second Issuer Notes;

         "SERIES 1 CLASS A GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 1 Class A Second Issuer
         Notes;

         "SERIES 1 CLASS B GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 1 Class B Second Issuer
         Notes;

         "SERIES 1 CLASS C GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 1 Class C Second Issuer
         Notes;

         "SERIES 1 GLOBAL SECOND ISSUER NOTES" means the Series 1 Class A Global
         Second Issuer Note, the Series 1 Class B Global Second Issuer Note and
         the Series 1 Class C Global Second Issuer Note;

         "SERIES 2 CLASS A GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 2 Class A Second Issuer
         Notes;

<PAGE>
                                       31

         "SERIES 2 CLASS B GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 2 Class B Second Issuer
         Notes;

         "SERIES 2 CLASS C GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 2 Class C Second Issuer
         Notes;

         "SERIES 2 GLOBAL SECOND ISSUER NOTES" means the Series 2 Class A Global
         Second Issuer Note, Series 2 Class B Global Second Issuer Note and the
         Series 2 Class C Global Second Issuer Note;

         "SERIES 3 CLASS A GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 3 Class A Second Issuer
         Notes;

         "SERIES 3 CLASS B GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 3 Class B Second Issuer
         Notes;

         "SERIES 3 CLASS C GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 3 Class C Second Issuer
         Notes;

         "SERIES 3 GLOBAL SECOND ISSUER NOTES" means the Series 3 Class A Global
         Second Issuer Note, the Series 3 Class B Global Second Issuer Note and
         the Series 3 Class C Global Second Issuer Note;

         "SERIES 4 CLASS A GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 4 Class A Second Issuer
         Notes;

         "SERIES 4 CLASS B GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 4 Class B Second Issuer
         Notes;

         "SERIES 4 CLASS C GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 4 Class C Second Issuer
         Notes;

         "SERIES 4 GLOBAL SECOND ISSUER NOTES" means the Series 4 Class A Global
         Second Issuer Notes, the Series 4 Class B Global Second Issuer Note and
         the Series 4 Class C Global Second Issuer Note;

         "SERIES 5 CLASS A GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 5 Class A Second Issuer
         Notes;

         "SERIES 5 CLASS B GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 5 Class B Second Issuer
         Notes;

         "SERIES 5 CLASS C GLOBAL SECOND ISSUER NOTE" means a separate global
         note in registered form representing the Series 5 Class C Second Issuer
         Notes;

         "SERIES 5 GLOBAL SECOND ISSUER NOTES" means the Series 5 Class A Global
         Second Issuer Note, Series 5 Class B Global Second Issuer Note and the
         Series 5 Class C Global Second Issuer Note;

<PAGE>
                                       32

         "SERIES 1 SECOND ISSUER NOTES" means collectively the Series 1 Class A
         Second Issuer Notes, the Series 1 Class B Second Issuer Notes and the
         Series 1 Class C Second Issuer Notes;

         "SERIES 2 SECOND ISSUER NOTES" means collectively the Series 2 Class A
         Second Issuer Notes, the Series 2 Class B Second Issuer Notes and the
         Series 2 Class C Second Issuer Notes;

         "SERIES 3 SECOND ISSUER NOTES" means collectively the Series 3 Class A
         Second Issuer Notes, the Series 3 Class B Second Issuer Notes and the
         Series 3 Class C Second Issuer Notes;

         "SERIES 4 SECOND ISSUER NOTES" means collectively the Series 4 Class A
         Second Issuer Notes, the Series 4 Class B Second Issuer Notes and the
         Series 4 Class C Second Issuer Notes;

         "SERIES 5 SECOND ISSUER NOTES" means collectively the Series 5 Class A
         Second Issuer Notes, the Series 5 Class B Second Issuer Notes and the
         Series 5 Class C Second Issuer Notes;

         "SERIES 1 CLASS A INTEREST PAYMENT DATE" means in respect of the Series
         1 Class A Second Issuer Notes the 10th day of each consecutive month
         (or, if such day is not a Business Day, the next succeeding Business
         Day), until the earliest of (i) the Quarterly Interest Payment Date
         immediately following the occurrence of a Trigger Event and (ii) the
         Quarterly Interest Payment Date immediately following the enforcement
         of the Second Issuer Security in accordance with the Second Issuer Deed
         of Charge, and thereafter the 10th day of September, December, March
         and June in each year (or if such day is not a Business Day, the next
         succeeding Business Day);

         "SERIES 1 CLASS A SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 1 Class A Second Issuer Notes
         in dollars;

         "SERIES 1 CLASS A SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 1
         Class A Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 1 CLASS B SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 1 Class B Second Issuer Notes
         in dollars;

         "SERIES 1 CLASS B SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 1
         Class B Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 1 CLASS C SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 1 Class C Second Issuer Notes
         in dollars;

<PAGE>
                                       33

         "SERIES 1 CLASS C SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 1
         Class C Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 1 CLASS A SECOND ISSUER SWAP PROVIDER" means CDC IXIS Capital
         Markets;

         "SERIES 1 CLASS B SECOND ISSUER SWAP PROVIDER" means CDC IXIS Capital
         Markets;

         "SERIES 1 CLASS C SECOND ISSUER SWAP PROVIDER" means CDC IXIS Capital
         Markets;

         "SERIES 1 SECOND ISSUER SWAP AGREEMENTS" means the Series 1 Class A
         Second Issuer Swap Agreement, the Series 1 Class B Second Issuer Swap
         Agreement and the Series 1 Class C Second Issuer Swap Agreement;

         "SERIES 1 SECOND ISSUER SWAP PROVIDER" means the Series 1 Class A
         Second Issuer Swap Provider, the Series 1 Class B Second Issuer Swap
         Provider and the Series 1 Class C Second Issuer Swap Provider;

         "SERIES 2 CLASS A SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 2 Class A Second Issuer Notes
         in dollars;

         "SERIES 2 CLASS A SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 2
         Class A Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 2 CLASS B SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 2 Class B Second Issuer Notes
         in dollars;

         "SERIES 2 CLASS B SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 2
         Class B Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 2 CLASS C SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 2 Class C Second Issuer Notes
         in dollars;

         "SERIES 2 CLASS C SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 2
         Class C Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

<PAGE>
                                       34

         "SERIES 2 SECOND ISSUER SWAP AGREEMENTS" means the Series 2 Class A
         Second Issuer Swap Agreement, the Series 2 Class B Second Issuer Swap
         Agreement and the Series 2 Class C Second Issuer Swap Agreement;

         "SERIES 2 CLASS A SECOND ISSUER SWAP PROVIDER" means JPMorgan Chase
         Bank;

         "SERIES 2 CLASS B SECOND ISSUER SWAP PROVIDER" means JPMorgan Chase
         Bank;

         "SERIES 2 CLASS C SECOND ISSUER SWAP PROVIDER" means JPMorgan Chase
         Bank;

         "SERIES 2 SECOND ISSUER SWAP PROVIDER" means the Series 2 Class A
         Second Issuer Swap Provider, the Series 2 Class B Second Issuer Swap
         Provider and the Series 2 Class C Currency Swap Provider;

         "SERIES 3 CLASS A SECOND ISSUER SWAP" means the sterling-euro currency
         swap which enables the Second Issuer to receive and pay amounts under
         the Second Issuer Intercompany Loan in sterling and to receive and pay
         amounts under the Series 3 Class A Second Issuer Notes in euro;

         "SERIES 3 CLASS A SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 3
         Class A Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 3 CLASS B SECOND ISSUER SWAP" means the sterling-euro currency
         swap which enables the Second Issuer to receive and pay amounts under
         the Second Issuer Intercompany Loan in sterling and to receive and pay
         amounts under the Series 3 Class B Second Issuer Notes in euro;

         "SERIES 3 CLASS B SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 3
         Class B Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 3 CLASS C SECOND ISSUER SWAP" means the sterling-euro currency
         swap which enables the Second Issuer to receive and pay amounts under
         the Second Issuer Intercompany Loan in sterling and to receive and pay
         amounts under the Series 3 Class C Second Issuer Notes in euro;

         "SERIES 3 CLASS C SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 3
         Class C Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 3 CLASS A SECOND ISSUER SWAP PROVIDER" means CDC IXIS Capital
         Markets];

         "SERIES 3 CLASS B SECOND ISSUER SWAP PROVIDER" means CDC IXIS Capital
         Markets;

         "SERIES 3 CLASS C SECOND ISSUER SWAP PROVIDER" means CDC IXIS Capital
         Markets;

<PAGE>
                                       35

         "SERIES 3 SECOND ISSUER SWAP AGREEMENTS" the Series 3 Class A Euro
         Currency Swap Agreement, the Series 3 Class B Euro Currency Swap
         Agreement and the Series 3 Class C Euro Currency Swap Agreement;

         "SERIES 3 SECOND ISSUER SWAP PROVIDER" means the Series 3 Class A
         Second Issuer Swap Provider, the Series 3 Class B Second Issuer Swap
         Provider and the Series 3 Class C Second Issuer Swap Provider;

         "SERIES 4 CLASS A SECOND ISSUER SWAP" means the sterling-dollar
         currency swap which enables the Second Issuer to receive and pay
         amounts under the Second Issuer Intercompany Loan in sterling and to
         receive and pay amounts under the Series 4 Class A Second Issuer Notes
         in dollars;

         "SERIES 4 CLASS A SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 4
         Class A Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 4 CLASS B SECOND ISSUER SWAP" means the sterlingeuro currency
         swap which enables the Second Issuer to receive and pay amounts under
         the Second Issuer Intercompany Loan in sterling and to receive and pay
         amounts under the Series 4 Class B Second Issuer Notes in euro;

         "SERIES 4 CLASS B SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 4
         Class B Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 4 CLASS C SECOND ISSUER SWAP" means the sterling-eurocurrency
         swap which enables the Second Issuer to receive and pay amounts under
         the Second Issuer Intercompany Loan in sterling and to receive and pay
         amounts under the Series 4 Class C Second Issuer Notes in euro;

         "SERIES 4 CLASS C SECOND ISSUER SWAP AGREEMENT" means the ISDA Master
         Agreement (including the schedule and confirmation thereto) entered
         into on or about the Second Issuer Closing Date between the Series 4
         Class C Second Issuer Swap Provider, the Second Issuer and the Security
         Trustee as amended and supplemented from time to time;

         "SERIES 4 SECOND ISSUER SWAP AGREEMENTS" means the Series 4 Class A
         Second Issuer Swap Agreement, the Series 4 Class B Second Issuer Swap
         Agreement and the Series 4 Class C Second Issuer Swap Agreement;

         "SERIES 4 CLASS A SECOND ISSUER SWAP PROVIDER" means Banque AIG;

         "SERIES 4 CLASS B SECOND ISSUER SWAP PROVIDER" means Banque AIG;

         "SERIES 4 CLASS C SECOND ISSUER SWAP PROVIDER" means Banque AIG;

<PAGE>
                                       36

         "SERIES 4 SECOND ISSUER SWAP PROVIDER" means the Series 4 Class A
         Second Issuer Swap Provider, the Series 4 Class B Second Issuer Swap
         Provider and the Series 4 Class C Second Issuer Swap Provider;

         "SPECIFIED OFFICE" means as the context may require, in relation to any
         of the Agents, the office specified against the name of such Agent in
         the Second Issuer Paying Agent and Agent Bank Agreement or such other
         specified notice as may be notified to the Second Issuer and the
         Security Trustee pursuant to the Second Issuer Paying Agent and Agent
         Bank Agreement;

         "STANDARD & POOR'S" means Standard & Poor's Rating Services, a division
         of The McGraw-Hill Companies, Inc. and any successor to its ratings
         business;

         "STERLING INTEREST DETERMINATION DATE" means the first day of the
         Interest Period for which the rate will apply;

         "SUBSCRIPTION AGREEMENT" means the Subscription Agreement relating to
         the sale of the Series 3 Second Issuer Notes, the Series 4 Class B
         Second Issuer Notes, the Series 4 Class C Second Issuer Notes and the
         Series 5 Second Issuer Notes, dated [27th February], 2003 between
         Funding 1, Halifax, the Mortgages Trustee, the Second Issuer and, as
         appropriate, the Joint Lead Managers;

         "STERLING-LIBOR" means the London Interbank Offered Rate for sterling
         deposits, as determined by the Agent Bank on the following basis:

         (a)  on the applicable Sterling Interest Determination Date, the Agent
              Bank will determine the arithmetic mean, rounded upwards to five
              decimal places, of the offered quotations to leading banks in the
              London inter-bank market for sterling deposits for the relevant
              period (or, in the case of the first Interest Period, the linear
              interpolation of the arithmetic mean of such offered quotations
              for three-month and four-month sterling deposits (rounded
              upwards, if necessary, to five decimal places)).

              This will be determined by reference to the display as quoted on
              the Moneyline Telerate Screen No. 3750 or, if the Moneyline
              Telerate Screen No. 3750 stops providing these quotations, the
              replacement service for the purposes of displaying this
              information will be used. If the replacement service stops
              displaying the information, another page as determined by the
              Second Issuer with the approval of the Note Trustee will be used.

              In each of these cases, the determination will be made at or
              about 11.00 a.m., London time, on that date;

         (b)  if, on any such Sterling Interest Determination Date, the screen
              rate is unavailable, the Agent Bank will:

              (1)  request the principal London office of each of the Reference
                   Banks to provide the Agent Bank with its offered quotation
                   to leading banks for sterling deposits of the equivalent
                   amount, and for the relevant period, in the London
                   inter-bank market as at or about 11.00 a.m. (London time);
                   and

              (2)  calculate the arithmetic mean, rounded upwards to five
                   decimal places, of those quotations;

<PAGE>
                                       37

         (c)  if, on any such Sterling Interest Determination Date, the screen
              rate is unavailable and only two or three of the Reference Banks
              provide offered quotations, the relevant rate for that Interest
              Period will be the arithmetic mean of the quotations as
              calculated in paragraph (b); and

         (d)  if, on any such Sterling Interest Determination Date, fewer than
              two Reference Banks provide quotations, the Agent Bank will
              consult with the Note Trustee and the Second Issuer for the
              purpose of agreeing a total of two banks to provide such
              quotations and the relevant rate for that Interest Period will be
              the arithmetic mean of the quotations as calculated in paragraph
              (b). If no such banks are agreed then the relevant rate for that
              Interest Period will be the rate in effect for the last preceding
              Interest Period for which paragraph (a) or (b) was applicable;

         "SUCCESSOR AGENT" means any successor to any Agent who may be appointed
         by the Second Issuer under the Second Issuer Paying Agent and Agent
         Bank Agreement;

         "SUCCESSOR AGENT BANK" means any successor to the Agent Bank who may be
         appointed by the Second Issuer under the Second Issuer Paying Agent and
         Agent Bank Agreement;

         "SUCCESSOR PAYING AGENT" means any successor to any Paying Agent who
         may be appointed by the Second Issuer under the Second Issuer Paying
         Agent and Agent Bank Agreement;

         "SUCCESSOR PRINCIPAL PAYING AGENT" means any successor to the Principal
         Paying Agent who may be appointed by the Second Issuer under the Second
         Issuer Paying Agent and Agent Bank Agreement;

         "TARGET BUSINESS DAY" means a day on which the Trans-European Automated
         Real-time Gross Settlement Express (TARGET) system is open;

         "TERM ADVANCE INTEREST DETERMINATION DATE" has the meaning given in
         CLAUSE 6.2(a)(i) of the Intercompany Loan Terms and Conditions;

         "TERM ADVANCE RATE OF INTEREST" has the meaning given in CLAUSE 6.2 of
         the Intercompany Loan Terms and Conditions;

         "TERM ADVANCE RATING" means the designated ratings which corresponds to
         the ratings assigned on the Second Issuer Closing Date to the
         corresponding class of Second Issuer Notes, the proceeds of which are
         applied by the Second Issuer to make such Term Advance to Funding 1.
         Any subsequent changes made to the ratings of the Second Issuer Notes
         will not affect the Term Advance Ratings of the Term Advances;

         "TERMS AND CONDITIONS" has the same meaning as "CONDITIONS";

         "THREE-MONTH USD-LIBOR" means the London Interbank Offered Rate for
         dollar deposits, as determined by the Agent Bank on the following
         basis:

         (a)  on the applicable Dollar Interest Determination Date applicable
              to the Series 1 Class B Second Issuer Notes, the Series 1 Class C
              Second Issuer Notes, the Series 2 Class A Second Issuer Notes,
              the Series 2 Class B Second Issuer Notes, the Series 2 Class C
              Second Issuer Notes and the Series 4 Class A Second Issuer Notes,
              the Agent Bank will determine the arithmetic mean, rounded
              upwards to five decimal places, of the

<PAGE>
                                       38

              offered quotations to leading banks in the London inter-bank
              market for [three-month] dollar deposits. The Three-Month
              USD-LIBOR for the first Interest Period shall be the linear
              interpolation of the arithmetic mean of such offered quotations
              for three-month and four-month Dollar deposits (rounded upwards,
              if necessary, to five decimal places).

              This will be determined by reference to the display as quoted on
              the Moneyline Telerate Screen No. 3750 or, if the Moneyline
              Telerate Screen No. 3750 stops providing these quotations, the
              replacement service for the purposes of displaying this
              information will be used. If the replacement service stops
              displaying the information, another page as determined by the
              issuer with the approval of the Note Trustee will be used.

              In each of these cases, the determination will be made as at or
              about 11.00 a.m., London time, on that date;

         (b)  if, on any such Dollar Interest Determination Date, the screen
              rate is unavailable, the Agent Bank will:

              (1)  request the principal London office of each of the Reference
                   Banks to provide the Agent Bank with its offered quotation
                   to leading banks for dollar deposits of the equivalent
                   amount and for the relevant period, in the London inter-bank
                   market as at or about 11.00 a.m. (London time); and

              (2)  calculate the arithmetic mean, rounded upwards to five
                   decimal places, of those quotations;

         (c)  if, on any such Dollar Interest Determination Date, the screen
              rate is unavailable and only two or three of the Reference Banks
              provide offered quotations, the relevant rate for that Interest
              Period will be the arithmetic mean of the quotations as
              calculated in paragraph (b); and

         (d)  if, on any such Dollar Interest Determination Date, fewer than
              two Reference Banks provide quotations, the Agent Bank will
              consult with the Note Trustee and the Second Issuer for the
              purpose of agreeing a total of two banks to provide such
              quotations and the relevant rate for that Interest Period will be
              the arithmetic mean of the quotations as calculated in paragraph
              (b). If no such banks are agreed then the relevant rate for that
              Interest Period will be the rate in effect for the last preceding
              Interest Period for which paragraph (a) or (b) was applicable;

         "TRANSACTION" means the transaction contemplated by the Transaction
         Documents;

         "TRANSACTION DOCUMENT" or "RELEVANT DOCUMENT" means any of the
         following documents:

         (a)  the Subscription Agreement;

         (b)  the Underwriting Agreement;

         (c)  the Second Issuer Intercompany Loan Agreement;

         (d)  the Mortgages Trust Deed;

<PAGE>
                                       39

         (e)  the Halifax Deed and Power of Attorney in relation to the
              Mortgages Trust Deed;

         (f)  the Mortgage Sale Agreement;

         (g)  the Seller Power of Attorney;

         (h)  the Second Issuer Deed of Charge;

         (i)  the Second Issuer Power of Attorney;

         (j)  the Funding 1 Deed of Charge;

         (k)  the Funding 1 Power of Attorney;

         (l)  the Funding 1 Liquidity Facility Agreement;

         (m)  the Second Issuer Swap Agreements;

         (n)  the Funding 1 Swap Agreement;

         (o)  the Second Issuer Trust Deed;

         (p)  the Second Issuer Paying Agent and Agent Bank Agreement;

         (q)  the Servicing Agreement;

         (r)  the Cash Management Agreement;

         (s)  the Second Issuer Cash Management Agreement;

         (t)  the Funding 1 Guaranteed Investment Contract;

         (u)  the Mortgages Trustee Guaranteed Investment Contract;

         (v)  the Second Issuer Post-Enforcement Call Option Agreement;

         (w)  the Bank Account Agreement;

         (x)  the Second Issuer Bank Account Agreement;

         (y)  the Funding 1 Corporate Services Agreement;

         (aa) the Second Issuer Corporate Services Agreement;

         (bb) the Mortgages Trustee Corporate Services Agreement; and

         (cc) the Second Start-up Loan Agreement;

         "TRANSFER AGENT" means Citibank, N.A. London Branch of 5 Carmelite
         Street, London EC4Y 0PA in its capacity as the transfer agent appointed
         by the Second Issuer under the Second Issuer Paying Agent and Agent
         Bank Agreement to administer the transfer of Second Issuer Notes;

<PAGE>
                                       40

         "UNDERWRITERS" means J.P. Morgan Securities Inc. and Lehman Brothers
         Inc., in respect of the Series 1 Class A Second Issuer Notes, the
         Series 1 Class B Second Issuer Notes, the Series 1 Class C Second
         Issuer Notes, the Series 2 Class A Second Issuer Notes, the Series 2
         Class B Second Issuer Notes, the Series 2 Class C Second Issuer Notes
         and the Series 4 Class A Second Issuer Notes and Credit Suisse First
         Boston Corporation and Deutsche Bank Securities Inc. in respect of the
         Series 1 Class A Second Issuer Notes, the Series 2 Class A Second
         Issuer Notes and the Series 4 Class A Second Issuer Notes;

         "UNDERWRITING AGREEMENT" means the Underwriting Agreement relating to
         the sale of the Series 1 Second Issuer Notes, the Series 2 Second
         Issuer Notes and the Series 4 Class A Second Issuer Notes dated [27th
         February], 2003 between Funding 1, Halifax, the Mortgages Trustee, the
         Second Issuer and J.P. Morgan Securities Inc., (for and on behalf of
         itself and the other Underwriters);

         "US PAYING AGENT" means Citibank, N.A., New York Branch of 14th Floor,
         Zone 3, 111 Wall Street, New York, New York 10043, as paying agent in
         the United States of America; and

         "USD-LIBOR" means One-month USD-LIBOR and Three-month USD-LIBOR.

2.       INTERPRETATION AND CONSTRUCTION

2.1      Any reference in this Master Definitions and Construction Schedule or
         any Transaction Document to:

         "AFFILIATE" of any person shall be construed as a reference to the
         ultimate holding company of that person or an entity of which that
         person or its ultimate holding company (a) has direct or indirect
         control or (b) owns directly or indirectly more than fifty per cent.
         (50%) of the share capital or similar rights of ownership;

         the "ASSETS" of any person shall be construed as a reference to the
         whole or any part of its business, undertakings, property, intellectual
         property, shares, securities, debts, accounts, revenues (including any
         right to receive revenues), goodwill, shareholdings and uncalled
         capital including premium whether now or hereafter acquired and any
         other assets whatsoever;

         "DIRECTION" or request of the holders of at least 25 per cent. in
         aggregate Principal Amount Outstanding of the Class A Second Issuer
         Notes shall mean:

         (a)  in relation to a matter which, in the opinion of the Note Trustee
              or, as the case may be, the Security Trustee, affects the
              interests of the holders of one class only of the Class A Second
              Issuer Notes, a single direction of the holders of at least 25
              per cent. in aggregate Principal Amount Outstanding of such class
              of Class A Second Issuer Notes;

         (b)  in relation to a matter which, in the opinion of the Note Trustee
              or, as the case may be, the Security Trustee, affects the
              interests of the holders of any two or more classes of the Class
              A Second Issuer Notes but does not give rise to a conflict of
              interest between the holders of such two or more classes of the
              Class A Second Issuer Notes, a single direction of the holders of
              at least 25 per cent. in aggregate Principal Amount Outstanding
              of such two or more classes of the Class A Second Issuer Notes;
              and

<PAGE>
                                       41

         (c)  in relation to a matter which, in the opinion of the Note Trustee
              or, as the case may be, the Security Trustee, affects the
              interests of the holders of any two or more classes of the Class
              A Second Issuer Notes and gives or may give rise to conflict of
              interest between the holders of such two or more classes of the
              Class A Second Issuer Notes, separate directions of the holders
              of at least 25 per cent. in aggregate Principal Amount
              Outstanding of any two or more such classes of the Class A Second
              Issuer Notes,

         and, in the case of (b) above, where the relevant classes of the Class
         A Second Issuer Notes are not all in the same currency, the Principal
         Amount Outstanding of Class A Second Issuer Notes denominated in US
         dollars or euro shall be the equivalent in sterling at the currency
         Swap Rate;

         "DISPOSAL" shall be construed as any sale, lease, transfer, conveyance,
         assignment, assignation, licence, sub-licence or other disposal and
         "DISPOSE" shall be construed accordingly;

         a "GUARANTEE" means any guarantee, bond, indemnity, letter of credit,
         third party security or other legally binding assurance against
         financial loss granted by one person in respect of any indebtedness of
         another person, or any agreement to assume any indebtedness of any
         other person or to supply funds or to invest in any manner whatsoever
         in such other person by reason of, or otherwise in relation to,
         indebtedness of such other person;

         "HOLDING COMPANY" means a holding company within the meaning of Section
         736 of the Companies Act 1985;

         "INDEBTEDNESS" shall be construed so as to include any obligation
         (whether incurred as principal or as surety) for the payment or
         repayment of money, whether present or future, actual or contingent;

         "MONTH" is a reference to a period starting on one day in a calendar
         month and ending on the numerically corresponding day in the next
         calendar month save that, where any such period would otherwise end on
         a day which is not a Business Day, it shall end on the next Business
         Day, unless that day falls in the calendar month succeeding that in
         which it would otherwise have ended, in which case it shall end on the
         preceding Business Day Provided that, if a period starts on the last
         Business Day in a calendar month or if there is no numerically
         corresponding day in the month in which that period ends, that period
         shall end on the last Business Day in that later month (and references
         to "MONTHS" shall be construed accordingly);

         "PARTY" shall be construed as a party to a particular agreement, as the
         case may be;

         "SUBSIDIARY" means, (a) a subsidiary within the meaning of Section 736
         of the Companies Act 1985, and (b) unless the context requires
         otherwise, a subsidiary undertaking within the meaning of Section 258
         of the Companies Act 1985;

         "VAT" means value added tax imposed by the United Kingdom as referred
         to in the Value Added Tax Act 1994 and legislation (whether delegated
         or otherwise) replacing the same or supplemental thereto or in any
         primary or subordinate legislation promulgated by the European Union or
         any official body or agency thereof, and any similar turnover tax
         replacing or introduced in addition to any of the same;

<PAGE>
                                       42

         a "WHOLLY-OWNED SUBSIDIARY" of a company or corporation shall be
         construed as a reference to any company or corporation which has no
         other members except that other company or corporation and that other
         company's or corporation's wholly-owned subsidiaries or persons acting
         on behalf of that other company or corporation or its wholly-owned
         subsidiaries; and

         the "WINDING-UP", "DISSOLUTION" or "ADMINISTRATION" of a company or
         corporation shall be construed so as to include any equivalent or
         analogous proceedings under the law of the jurisdiction in which such
         company or corporation is incorporated or any jurisdiction in which
         such company or corporation carries on business including the seeking
         of liquidation, winding-up, bankruptcy, reorganisation, dissolution,
         administration, arrangement, adjustment, protection or relief of
         debtors.

2.2      "POUND STERLING", "STERLING" or "POUNDS STERLING" denotes the lawful
         currency for the time being of the United Kingdom; "$", "US$", "DOLLAR"
         or "USD" denotes the lawful currency for the time being of the United
         States of America and "Euro", "euro" or "EURO" denotes the single
         currency introduced at the start of the third stage of European
         Economic Monetary Union pursuant to the Treaty of Rome of 25th March,
         1957, as amended by, inter alia, the Single European Act of 1986 and
         the Treaty of European Union of 7th February, 1992 and the Treaty of
         Amsterdam of 2nd October 1997 establishing the European Community, as
         further amended from time to time.

2.3      In this Second Issuer Master Definitions and Construction Schedule and
         in any of the Transaction Documents in which this Second Issuer Master
         Definitions and Construction Schedule is expressed to be incorporated
         or to which this Second Issuer Master Definitions and Construction
         Schedule is expressed to apply:

         (a)  words denoting the singular number only shall include the plural
              number also and vice versa;

         (b)  words denoting one gender only shall include the other genders;

         (c)  words denoting persons only shall include firms and corporations
              and vice versa;

         (d)  references to any statutory provision shall be deemed also to
              refer to any statutory modification or re-enactment thereof or
              any statutory instrument, order or regulation made thereunder or
              under any such re-enactment;

         (e)  references to any agreement or other document (including any of
              the Transaction Documents) shall be deemed also to refer to such
              agreement or document as amended, varied, supplemented or novated
              from time to time;

         (f)  clause, paragraph and schedule headings are for ease of reference
              only;

         (g)  reference to a statute shall be construed as a reference to such
              statute as the same may have been, or may from time to time be,
              amended or re-enacted to the extent such amendment or
              re-enactment is substantially to the same effect as such statute
              on the date hereof;

         (h)  reference to a time of day shall be construed as a reference to
              London time; and

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                                       43

         (i)  references to any person shall include references to his
              successors, transferees and assigns and any person deriving title
              under or through him.

2.4    Any definition that appears in the Second Issuer Agreements that does not
       appear in this Second Issuer Master Definitions and Construction
       Schedule, shall have the meaning given in the Amended and Restated Master
       Definitions and Construction Schedule (as the same may be amended or
       varied from time to time), as the context so requires. In the event of a
       conflict between the definitions in the Second Issuer Master Definitions
       and Construction Schedule and the Amended and Restated Master Definitions
       and Construction Schedule, the definitions in the Second Issuer Master
       Definitions and Construction Schedule shall prevail.

3.     GOVERNING LAW

       This Second Issuer Master Definitions and Construction Schedule is
       governed by, and shall be construed in accordance with, the laws of
       England, and the parties hereto irrevocably submit to the jurisdiction of
       the courts of England.

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                                       44

                                   SIGNATORIES

Signed for the purposes of identification by         )
ALLEN & OVERY                                        )

Signed for the purposes of identification by         )
SIDLEY AUSTIN BROWN & WOOD                           )

<PAGE>

                                                             DRAFT (2): 19.02.03

                             DATED [5TH MARCH], 2003

                         PERMANENT FINANCING (NO. 2) PLC

                        ________________________________

                        SECOND ISSUER MASTER DEFINITIONS
                            AND CONSTRUCTION SCHEDULE
                        ________________________________

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