Document:

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                                                                    Exhibit 4.10
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DRAFT: 25/02/03

THIS AMENDED AND RESTATED SERVICING AGREEMENT is made as a deed on [6th March],
2003

BETWEEN:

(1)      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 in its
         capacity as the Servicer of the Loans and the Related Security;

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

(3)      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 in its
         capacity as the Seller and as one of the Beneficiaries;

(4)      PERMANENT FUNDING (NO. 1) LIMITED (registered number 4267660), a
         private limited company incorporated under the laws of England and
         Wales whose registered office is at Blackwell House, Guildhall Yard,
         London EC2V 5AE in its capacity as Funding 1 and one of the
         Beneficiaries;

(5)      STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
         organised under the laws of the Commonwealth of Massachusetts, United
         States of America with its branch office at 1 Canada Square, Canary
         Wharf, London E14 5AF acting as a co-trustee in its capacity as
         Security Trustee; and

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

WHEREAS:

(A)      The Servicer carries on the business of, inter alia, administering
         mortgage loans secured on residential properties within the United
         Kingdom.

(B)      By the Mortgage Sale Agreement, the Seller agreed to assign the Loans
         and Related Security comprised in the Initial Portfolio to the
         Mortgages Trustee. The Mortgages Trustee holds the Initial Portfolio
         together with any New Portfolio on trust for Funding 1 and the Seller
         pursuant to the terms of the Mortgages Trust Deed.

(C)      The Servicer has agreed to provide administration and management
         services to the Mortgages Trustee, the Seller and Funding 1 on the
         terms and subject to the conditions contained in the Servicing
         Agreement dated 14th June, 2002, (as amended and restated on the Second
         Issuer Closing Date and as further amended and/or restated from time to
         time, the "SERVICING AGREEMENT") in relation to, inter alia, the Loans
         and Related Security assigned to the Mortgages Trustee by the Seller.

(D)      The parties to the Servicing Agreement have agreed to amend and restate
         the terms of that Agreement as set out herein.

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IT IS HEREBY AGREED as follows:

1.       DEFINITIONS AND INTERPRETATION

1.1      The Amended and Restated Master Definitions and Construction Schedule
         signed for the purposes of identification by Allen & Overy and Sidley
         Austin Brown & Wood on [5th March], 2003 (as the same may be amended,
         varied or supplemented from time to time with the consent of the
         parties hereto) is expressly and specifically incorporated into this
         Agreement and, accordingly, the expressions defined in the Amended and
         Restated Master Definitions and Construction Schedule (as so amended,
         varied or supplemented) shall, except where the context otherwise
         requires and save where otherwise defined herein, have the same
         meanings in this Agreement, including the Recitals hereto and this
         Agreement shall be construed in accordance with the interpretation
         provisions set out in CLAUSE 2 of that Amended and Restated Master
         Definitions and Construction Schedule.

1.2      Any reference in this Agreement to any discretion, power or right on
         the part of the Mortgages Trustee shall be as exercised by the
         Mortgages Trustee only as directed by the Beneficiaries but subject in
         each case to the provisions of CLAUSE 16.2 of the Mortgages Trust Deed.

1.3      Save as expressly provided herein, any warranties or undertakings
         provided under this Agreement are made to each other party of this
         Agreement.

1.4      This Agreement amends and restates the Servicing Agreement made on 14th
         June, 2002 between the parties hereto (the "PRINCIPAL AGREEMENT"). As
         of the date of this Agreement, any future rights or obligations
         (including such obligations accrued to the date of this Agreement) of a
         party under the Principal Agreement shall be extinguished and shall
         instead be governed by this Agreement. The parties agree that the
         amended and restated Agreement shall have effect and be operational as
         from 14th June, 2002.

2.       APPOINTMENT OF SERVICER

2.1      Subject to CLAUSES 2.3 and 4.3(D), and until termination pursuant to
         CLAUSE 21, the Mortgages Trustee, the Seller and Funding 1 (according
         to their respective estates and interests) each hereby appoints the
         Servicer as its lawful agent on their respective behalves to administer
         the Loans, to provide certain other administration and management
         services and to exercise their respective rights, powers and
         discretions, and to perform their respective duties, under and in
         relation to the Loans and their Related Security. The Servicer in each
         case hereby accepts such appointment on the terms and subject to the
         conditions of this Agreement. The Security Trustee consents to the
         appointment of the Servicer on the terms of and subject to the
         conditions of this Agreement.

2.2      For the avoidance of doubt and in connection with the rights, powers
         and discretions conferred under CLAUSE 2.1, during the continuance of
         its appointment hereunder, the Servicer shall, subject to the terms and
         conditions of this Agreement, the Mortgage Conditions, the Mortgage
         Sale Agreement and the Mortgages Trust Deed, have the full power,
         authority and right to do or cause to be done any and all things which
         it reasonably considers necessary, convenient or incidental to the
         administration of the Loans and their Related Security or the exercise
         of such rights, powers and discretions, provided however that neither
         the Mortgages Trustee nor Funding 1 nor their respective directors
         shall be required or obliged at any time to enter into any transaction
         or to comply with any directions which the Servicer may give with

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         respect to the operating and financial policies of the Mortgages
         Trustee or Funding 1 and the Servicer hereby acknowledges that all
         powers to determine such policies (including the determination of
         whether or not any particular policy is for the benefit of the
         Mortgages Trustee or Funding 1) are, and shall at all times remain,
         vested, as the case may be, in the Mortgages Trustee and/or Funding 1
         (and their respective directors) and none of the provisions of this
         Agreement shall be construed in a manner inconsistent with this
         proviso.

2.3      The appointment pursuant to CLAUSE 2.1 is conditional upon the issue of
         the First Issuer Notes having taken place and shall take effect upon
         and from the Initial Closing Date automatically without any further
         action on the part of any person PROVIDED THAT if the issue of the
         First Issuer Notes has not occurred by the 14th June, 2002, or such
         later date as the First Issuer and the Joint Lead Managers may agree,
         this Agreement shall cease to be of further effect.

3.       THE ADMINISTRATION SERVICES

3.1      GENERAL

(A)      The duty of the Servicer shall be to provide the services set out in
         this Agreement including Schedule 1 hereto (the "SERVICES").

(B)      If and when the Servicer is requested to confirm or state the capacity
         in which it is administering and servicing the Loans, their Related
         Security and related matters pursuant to this Agreement by any Borrower
         or any third party not being a party to this Agreement and to whom the
         Servicer is obliged by law to disclose such information, the Servicer
         shall confirm or state that it is acting in its capacity as servicer of
         the Loans, their Related Security and related matters as agent for and
         on behalf of the Mortgages Trustee and the Beneficiaries and not on its
         own behalf.

3.2      SUB-CONTRACTS

(A)      The Servicer may sub-contract or delegate the performance of all or any
         of its powers and obligations under this Agreement, provided that (but
         subject to CLAUSE 3.2(B)):

         (i)      the prior written consent of Funding 1 and the Security
                  Trustee to the proposed arrangement (including, if Funding 1
                  and the Security Trustee consider it necessary, approving any
                  contract which sets out the terms on which such arrangements
                  are to be made) has been obtained and written notification has
                  been given to each of the Rating Agencies;

         (ii)     where the arrangements involve the custody or control of any
                  Customer Files and/or Title Deeds relating to the Portfolio
                  for the purpose of performing any delegated Services the
                  sub-contractor or delegate has executed an acknowledgement in
                  form and substance acceptable to Funding 1 and the Security
                  Trustee to the effect that any such Customer Files and/or
                  Title Deeds are and will be held to the order of the Mortgages
                  Trustee (as trustee for the Beneficiaries);

         (iii)    where the arrangements involve or may involve the receipt by
                  the sub-contractor or delegate of monies belonging to the
                  Beneficiaries which, in accordance with this Agreement, are to
                  be paid into the Mortgages Trustee GIC Account and/or the
                  Funding 1 GIC Account, the sub-contractor or delegate has
                  executed a declaration in form and substance acceptable to the
                  Beneficiaries that any such monies held by it or to its order
                  are held on trust for the Beneficiaries and will be paid
                  forthwith into, as

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                  applicable, the Mortgages Trustee GIC Account and/or the
                  Funding 1 GIC Account in accordance with the terms of the
                  Mortgages Trust Deed;

         (iv)     any such sub-contractor or delegate has executed a written
                  waiver of any Security Interest arising in connection with
                  such delegated Services (to the extent that such Security
                  Interest relates to the Portfolio or any amount referred to in
                  (iii) above); and

         (v)      neither the Security Trustee, the Mortgages Trustee nor
                  Funding 1 shall have any liability for any costs, charges or
                  expenses payable to or incurred by such sub-contractor or
                  delegate or arising from the entering into, the continuance or
                  the termination of any such arrangement.

(B) The provisos to CLAUSE 3.2(A)(i), (ii) and (iii) shall not apply:

         (i)      to the engagement by the Servicer of:

                  (a)      any receiver, solicitor, insurance broker, valuer,
                           surveyor, accountant, estate agent, insolvency
                           practitioner, auctioneer, bailiff, debt counsellor,
                           tracing agent, property management agent, licensed
                           conveyancer or other professional adviser acting as
                           such; or

                  (b)      any locksmith, builder or other contractor acting as
                           such in relation to a Property,

                  in any such case being a person or persons whom the Servicer
                  would be willing to appoint in respect of its own mortgages in
                  connection with the performance by the Servicer of any of its
                  obligations or functions or in connection with the exercise of
                  its powers under this Agreement; or

         (ii)     to any delegation to any wholly-owned subsidiary of the Seller
                  or HBOS plc from time to time. (C) The Mortgages Trustee
                  and/or Funding 1 and the Security Trustee may by notice in
                  writing require the Servicer to assign to the Mortgages
                  Trustee any rights which the Servicer may have against any
                  sub-contractor or delegate arising from the performance of
                  services by such person relating to any matter contemplated by
                  this Agreement and the Servicer acknowledges that such rights
                  assigned to the Mortgages Trustee will be exercised by the
                  Mortgages Trustee as trustee for the Beneficiaries subject to
                  the terms of the Mortgages Trust Deed.

(D)      Notwithstanding any sub-contracting or delegation of the performance of
         its obligations under this Agreement, the Servicer shall not thereby be
         released or discharged from any liability hereunder and shall remain
         responsible for the performance of all of the obligations of the
         Servicer under this Agreement, and the performance or non-performance
         or the manner of performance of any sub-contractor or delegate of any
         of the Services shall not affect the Servicer's obligations under this
         Agreement and any breach in the performance of the Services by such
         sub-contractor or delegate shall, subject to the Servicer being
         entitled for a period of twenty London Business Days from receipt of
         any notice of the breach to remedy such breach by any sub-contractor or
         delegate, be treated as a breach of this Agreement by the Servicer.

3.3      NOTICES ETC.

(A)      Within 20 London Business Days of the Initial Closing Date, the
         Servicer will give notice (or procure that notice is given) by courier
         or by special delivery to HBOS Insurance (PCC)

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         Guernsey Limited of the assignment to the Mortgages Trustee by the
         Seller of its interests in the Halifax Mortgage Re Limited MIG Policies
         pursuant to the Assignment of Halifax Mortgage Re Limited MIG Policies,
         which shall be held by the Mortgages Trustee absolutely as bare trustee
         for the Beneficiaries pursuant to the Mortgages Trust Deed, and the
         Servicer shall take all reasonable steps to ensure the return by the
         relevant recipient of the duplicate notices of assignment by way of
         acknowledgement thereof.

(B)      Promptly upon request by Funding 1 and the Security Trustee, the
         Servicer shall procure that any notices permitted to be given by the
         Mortgages Trustee under Clause 6.4 of the Mortgage Sale Agreement are
         so given by the Servicer on the Mortgages Trustee's behalf.

3.4      LIABILITY OF SERVICER

(A)      The Servicer shall indemnify each of the Mortgages Trustee and the
         Beneficiaries on demand on an after-tax basis for any loss, liability,
         claim, expense or damage suffered or incurred by any of them in respect
         of the negligence or wilful default of the Servicer in carrying out its
         functions as Servicer under this Agreement or the other Transaction
         Documents or as a result of a breach by the Servicer of the terms and
         provisions of this Agreement or the other Transaction Documents in
         relation to such functions.

(B)      For the avoidance of doubt, the Servicer shall not be liable in respect
         of any loss, liability, claim, expense or damage suffered or incurred
         by the Mortgages Trustee and/or the Beneficiaries and/or any other
         person as a result of the proper performance of the Services by the
         Servicer save where such loss, liability, claim, expense or damage is
         suffered or incurred as a result of any negligence or wilful default of
         the Servicer or as a result of a breach by the Servicer of the terms
         and provisions of this Agreement or the other Transaction Documents in
         relation to such functions.

(C)      Any indemnification under this CLAUSE 3.4 in respect of loss suffered
         by the Beneficiaries shall be paid for by reducing the Seller Share of
         the Trust Property by an amount equal to the relevant loss incurred by
         the Beneficiaries in accordance with CLAUSE 8.4 of the Mortgages Trust
         Deed and SCHEDULE 2 to the Cash Management Agreement.

4.       MORTGAGES TRUSTEE VARIABLE BASE RATE/MORTGAGES TRUSTEE TRACKER RATE

4.1      The Mortgages Trustee and each of the Beneficiaries each hereby grants
         the Servicer full right, liberty and authority from time to time, in
         accordance with the relevant Mortgage Terms, to determine and set the
         Mortgages Trustee Variable Base Rate and any variable margin
         incorporated within the Mortgages Trustee Tracker Rate above the Bank
         of England repo rate applicable in relation to Tracker Rate Loans
         chargeable to Borrowers from time to time. In exercising such right,
         liberty and authority the Servicer undertakes to each of the other
         parties to this Agreement that it shall not at any time set or maintain
         the Mortgages Trustee Variable Base Rate at a rate which is higher than
         the then prevailing Seller's Variable Base Rate, nor will it set or
         maintain a margin incorporated within the Mortgages Trustee Tracker
         Rate above the Bank of England repo rate in respect of any Tracker Rate
         Loan, which is higher than the margin above the Bank of England repo
         rate then applying to those Tracker Rate Loans owned by the Seller
         outside the Portfolio except in the limited circumstances described in
         this paragraph when the Mortgages Trustee will be entitled to do so.
         The Servicer will not at any time, without the prior consent of the
         Mortgages Trustee and Funding 1, set or maintain:

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         (i)      the Mortgages Trustee Variable Base Rate at a rate which is
                  higher than (although it may be lower than or equal to) the
                  then prevailing Seller's Variable Base Rate which applies to
                  loans beneficially owned by the Seller outside the Portfolio;

         (ii)     the margin incorporated within the Mortgages Trustee Tracker
                  Rate in respect of any Tracker Rate Loan in the Portfolio
                  which, where the offer conditions for that Tracker Rate Loan
                  provide that the margin above the Bank of England repo rate
                  shall be the same as the margin above the Bank of England repo
                  rate applicable to all other loans having the same offer
                  conditions in relation to interest rate setting as that
                  Tracker Rate Loan, is higher or lower than the margin above
                  the Bank of England repo rate then applying to those Tracker
                  Rate Loans beneficially owned by the Seller outside the
                  Portfolio; and

         (iii)    the margin incorporated within the Mortgages Trustee Tracker
                  Rate above the Bank of England repo rate in respect of any
                  other Tracker Rate Loan which is higher than the margin above
                  the Bank of England repo rate which would then be set in
                  accordance with the Seller's Policy from time to time in
                  relation to that Tracker Rate Loan,

         unless the Servicer is required to do so pursuant to CLAUSE 4.3, and,
         subject to that requirement, that it shall not change the Mortgages
         Trustee Variable Base Rate nor the Mortgages Trustee Tracker Rate save
         for the same reasons as the Seller was entitled, under the Mortgage
         Conditions, to change the Seller's Variable Base Rate and the Seller's
         Tracker Rate prior to the assignment to the Mortgages Trustee of the
         Loans comprised in the Portfolio and their Related Security. Each of
         the Mortgages Trustee and the Beneficiaries shall be bound by the
         Mortgages Trustee Variable Base Rate and the Mortgages Trustee Tracker
         Rate set in accordance with this Agreement.

4.2      The Servicer shall take the steps rendered necessary by the relevant
         Mortgage Terms and applicable law (including, without limitation, the
         Guidance Note on Interest Variation Terms issued by the Office of Fair
         Trading in February 2000 and any successor guideline or applicable
         additional guidelines) to bring each change in such rate or rates of
         interest to the attention of the relevant Borrowers, whether due to a
         change in the Mortgages Trustee Variable Base Rate or the Mortgages
         Trustee Tracker Rate or as a consequence of any provisions of the
         Mortgage Terms. Any change in the Mortgages Trustee Variable Base Rate
         or the Mortgages Trustee Tracker Rate shall be notified in writing to
         each of the Mortgages Trustee, the Security Trustee and the
         Beneficiaries as soon as reasonably practicable and shall, upon receipt
         of a request from any of such parties, notify such requesting party of
         any changes in the Monthly Payments in relation to the Loans. All costs
         arising in relation to such a notification of a change in such rate or
         rates of interest shall be borne by the Servicer.

4.3      (A)      On each Funding 1 Interest Payment Date the Servicer shall
                  determine, having regard to the aggregate of:

                  (i)      the revenue which Funding 1 would expect to receive
                           during the next succeeding Interest Period; and

                  (ii)    the other resources available to Funding 1 including
                          the Funding 1 Swap Agreement, the Funding 1 Liquidity
                          Facility and the Reserve Fund,

                  whether Funding 1 would receive an amount of revenue during
                  that Loan Interest Period which when aggregated with the funds
                  otherwise available to it is less than the amount which is the
                  aggregate of (1) the amount of interest which will be payable
                  in respect of the Term AAA Advances on the Funding 1 Interest
                  Payment Date falling at

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                  the end of such Loan Interest Period and (2) the other senior
                  expenses of Funding 1 which rank in priority thereto (the
                  amount (if any) by which it is less being the "INTEREST RATE
                  SHORTFALL").

         (B)      If the Servicer determines that there will be an Interest Rate
                  Shortfall, it will within one London Business Day of such
                  determination give written notice thereof to the Mortgages
                  Trustee, Funding 1 and the Security Trustee of such Interest
                  Rate Shortfall and of the Mortgages Trustee Variable Base Rate
                  and/or the Mortgages Trustee Tracker Rate which would (taking
                  into account the applicable Mortgage Conditions), in the
                  Servicer's reasonable opinion, need to be set in order for no
                  Interest Rate Shortfall to arise, having regard to the date(s)
                  (which shall be specified in the notice) on which such change
                  to the Mortgages Trustee Variable Base Rate and the Mortgages
                  Trustee Tracker Rate would take effect and at all times acting
                  in accordance with the standards of a Reasonable, Prudent
                  Mortgage Lender as regards the competing interests of
                  Borrowers with Mortgage Trustee Variable Base Rate Loans and
                  Borrowers with Mortgages Trustee Tracker Rate Loans.

         (C)      If the Mortgages Trustee, Funding 1 and the Security Trustee
                  notify the Servicer that, having regard to the obligations of
                  Funding 1, the Mortgages Trustee Variable Base Rate and/or the
                  Mortgages Trustee Tracker Rate should be increased, the
                  Servicer, as agent for and on behalf of, inter alia, the
                  Mortgages Trustee and the Beneficiaries, shall take all steps
                  which are necessary, including publishing any notice which is
                  required in accordance with the Mortgage Terms, to effect such
                  change in the Mortgages Trustee Variable Base Rate and/or the
                  Mortgages Trustee Tracker Rate on the date(s) specified in the
                  notice referred to in CLAUSE 4.3(B).

         (D)      The Mortgages Trustee and/or Funding 1 and the Security
                  Trustee may terminate the authority of the Servicer under
                  CLAUSE 4.1 and CLAUSE 4.3 to determine the Mortgages Trustee
                  Variable Base Rate and the Mortgages Trustee Tracker Rate on
                  or after the occurrence of a Servicer Termination Event, in
                  which case the Mortgages Trustee shall set the Mortgages
                  Trustee Variable Base Rate and the Mortgages Trustee Tracker
                  Rate in accordance with this CLAUSE 4.

5.       ADMINISTRATION OF MORTGAGES

5.1      DIRECT DEBITING SCHEME

(A)      For the purposes of collecting amounts due from Borrowers under the
         Loans and the Related Security comprised in the Portfolio in accordance
         with this Agreement the Servicer will unless otherwise agreed in
         writing with the Beneficiaries:

         (i)      act, or procure that another person approved in writing by the
                  Beneficiaries (such approval not to be unreasonably withheld)
                  (the "THIRD PARTY COLLECTION AGENT") acts, as collection agent
                  for the Mortgages Trustee and the Beneficiaries under the
                  Direct Debiting Scheme and remains a member of the Direct
                  Debiting Scheme or any scheme which replaces the Direct
                  Debiting Scheme;

         (ii)     subject to CLAUSES 5.1(B) and 5.1(C), deliver to the Bankers
                  Automated Clearing System ("BACS") or to the Account Bank such
                  instructions as may be necessary from time to time for the
                  debit of the account of each Borrower in respect of which
                  there is a direct debit mandate (the date of such delivery
                  being the "D.D. DATE") with the Monthly Payment due from such
                  Borrower, and for the amount of such Monthly Payment to be
                  credited to the Mortgages Trustee GIC Account on the day after
                  the

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                  D.D. Date or, if such is not a London Business Day, the
                  following London Business Day unless the short-term ratings of
                  the Account Bank fall below A-1 by S&P, P-1 by Moody's or F-1
                  by Fitch, in which case all further instructions by the
                  Servicer to debit the accounts of Borrowers that are subject
                  to direct debit bank mandates shall be made to another bank
                  which has a rating of at least A-1 by S&P, P-1 by Moody's or
                  F-1 by Fitch, or directly to the Mortgages Trustee GIC
                  Account;

         (iii)    subject to CLAUSES 5.1(B) and 5.1(C), deliver to each Account
                  Bank or BACS (as appropriate) instructions for the debit of
                  the account of each Borrower in respect of which there is a
                  direct debit mandate and the Monthly Payment due and owing
                  from such Borrower on the D.D. Date immediately preceding the
                  next succeeding Monthly Payment Date remains outstanding to
                  the extent that, on the date of presentation of such
                  instructions, such Monthly Payment has not been received in
                  full by the Servicer on behalf of the Mortgages Trustee and
                  where the instructions for the debit of the account of the
                  relevant Borrower for the Monthly Payment due and owing from
                  such Borrower was returned to the Administrator marked
                  "insufficient funds" within ten London Business Days of
                  receipt by the Administrator of any such returned
                  instructions;

         (iv)     subject to CLAUSES 5.1(B) and 5.1(C), deliver to each Account
                  Bank or BACS (as appropriate) such other instructions for the
                  debit of the account of each Borrower in respect of which
                  there is a direct debit mandate in accordance with the Direct
                  Debiting Scheme as may be appropriate for the recovery of sums
                  due by such Borrower;

         (v)      comply in all material respects with the requirements from
                  time to time of the Direct Debiting Scheme including "The
                  Originator's Guide and Rules to the Direct Debiting Scheme" as
                  amended from time to time; and

         take all such other steps as are reasonably appropriate, including in
         particular the preparation and administration of appropriate computer
         tapes in connection with BACS, to ensure that all monies received from
         Borrowers during banking hours on any particular day are credited on
         the next day to the Mortgages Trustee GIC Account.

(B)      The Servicer may agree with a Borrower that the Direct Debiting Scheme
         shall not apply to Monthly Payments to be made by such Borrower,
         provided, subject to CLAUSE 5.1(D), that (i) alternative payment
         arrangements are made which are intended to ensure timely payment of
         Monthly Payments due from the Borrower to the Mortgages Trustee on
         behalf of the Beneficiaries, and (ii) the change in arrangements was
         made at the instigation of the Borrower or by the Servicer in
         accordance with the procedures which would be adopted by a Reasonable,
         Prudent Mortgage Lender.

(C)      The Servicer may, notwithstanding the proviso to CLAUSE 5.1(B), agree
         such procedures for the payment by a Borrower of (i) overdue amounts
         and (ii) amounts payable on redemption of a Mortgage in whole or in
         part other than through the Direct Debiting Scheme as would be agreed
         by a Reasonable, Prudent Mortgage Lender.

(D)      The Servicer shall, notwithstanding the proviso to CLAUSE 5.1(B), use
         its reasonable endeavours to credit Monthly Payments made by a Borrower
         under a payment arrangement other than the Direct Debiting Scheme to
         the Mortgages Trustee GIC Account as follows:

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         (i)      where the Borrower pays by standing order, by close of
                  business on the second London Business Day following the day
                  on which such amount is received or credited by the Servicer;

         (ii)     where the Borrower pays by payment of cash, by transfer
                  payment from another account of the Seller or by cheque where
                  reference to the relevant Borrower is provided or payments are
                  made by way of paying-in book, by close of business on the
                  London Business Day which immediately follows the day on which
                  such amount is received or credited by the Servicer; and

         (iii)    where the Borrower pays by cheque where a reference to the
                  relevant Borrower is not provided, by close of business on the
                  next London Business Day after notification from the banks
                  operating the Seller Bank Accounts of the identity of the
                  Borrower.

(E)      Where a Borrower permits a direct debit to be made to his bank account,
         the Servicer will endeavour to procure that such Borrower maintains a
         valid and effective mandate relating to such direct debit in relation
         to each Monthly Payment due from that Borrower, provided that in any
         case where a Borrower will not permit a direct debit to be made to his
         bank account the Servicer will endeavour to make alternative
         arrangements acceptable to a Reasonable, Prudent Mortgage Lender so
         that such Borrower nevertheless pays each Monthly Payment within the
         month in which it falls due.

(F)      In the event that the BACS system ceases to operate for any reason the
         Servicer will use reasonable endeavours to make alternative
         arrangements for the use of the back up systems available to each
         Account Bank.

(G)      If at any time the Servicer shall receive notice whether under the
         Direct Debiting Scheme or otherwise that any amount (or part thereof),
         which was paid in or credited pursuant to CLAUSE 5.1 and which has been
         transferred to the Mortgages Trustee GIC Account has not been received
         as cleared funds or has otherwise been recalled, the Servicer shall
         notify the Cash Manager and instruct the Cash Manager forthwith to
         debit the Mortgages Trustee GIC Account and credit the relevant
         collection account for the whole or any part of such amount (such
         amount hereinafter referred to as the "shortfall") and, an amount equal
         to any costs which are irrecoverable by the Servicer from the relevant
         Borrower incurred by the Servicer as a result of such shortfall;
         PROVIDED THAT no debit from the Mortgages Trustee GIC Account for the
         credit of the collection accounts in respect of any shortfall may be
         made on or after a Calculation Date in respect of the relevant period
         between that Calculation Date and the next Distribution Date unless
         sufficient funds are available after providing or making provision for
         all payments to be made on the next succeeding Distribution Date. After
         that following Distribution Date the Mortgages Trustee shall transfer,
         or procure on its behalf the transfer, from the Mortgages Trustee GIC
         Account to the relevant collection account of an amount equal to such
         shortfall subject to it having sufficient funds available to it or the
         Servicer shall deduct an amount equal to such shortfall from payments
         otherwise due on a daily basis from the Seller to the Mortgages Trustee
         in respect of Principal Receipts and Interest Receipts received under
         the Loans.

5.2      ADMINISTRATION AND ENFORCEMENT OF MORTGAGES

(A)      The Mortgages Trustee and the Beneficiaries hereby direct the Servicer
         to administer the Loans comprised in the Portfolio and carry out its
         specific obligations under this Agreement in accordance with the
         Seller's Policy.

<PAGE>
                                       10

(B)      The Servicer will, in relation to any default by a Borrower under or in
         connection with a Loan or a Mortgage comprised in the Portfolio, comply
         with the Enforcement Procedures or, to the extent that the Enforcement
         Procedures are not applicable having regard to the nature of the
         default in question, take such action as is not materially prejudicial
         to the interests of the Mortgages Trustee (as trustee for the
         Beneficiaries) and the Beneficiaries under the relevant MIG Policy,
         provided that:

         (i)      the Servicer shall only become obliged to comply with the
                  Enforcement Procedures (to the extent applicable) or to take
                  action as aforesaid after it has become aware of the default;

         (ii)     it is acknowledged by the Beneficiaries that mortgage lenders
                  generally exercise discretion in pursuing their respective
                  enforcement procedures and that the Servicer may exercise such
                  discretion as would a Reasonable, Prudent Mortgage Lender in
                  applying the Enforcement Procedures to any particular
                  defaulting Borrower or taking action as aforesaid, provided
                  that in exercising such discretion the interest of Funding 1
                  in the Portfolio is not materially prejudiced; and

         (iii)    in any case where any of the Insurance Policies requires exact
                  compliance with certain enforcement procedures the Servicer
                  shall procure the prior written consent of the relevant
                  insurance company for any deviation by it from such
                  enforcement procedures.

5.3      RECORDS

         The Servicer shall keep and maintain records in relation to the
         Portfolio, on a Loan by Loan basis, for the purposes of identifying
         amounts paid by each Borrower, any amount due from a Borrower and the
         principal balance (and, if different, the total balance) from time to
         time outstanding on a Borrower's account and such other records as
         would be kept by a Reasonable, Prudent Mortgage Lender. The Servicer
         will provide such information to the Mortgages Trustee and/or Funding 1
         and/or the Security Trustee or to their order at any time upon
         reasonable notice subject to the Servicer being reasonably capable of
         providing such information without significant additional cost and
         subject to the provisions of the Data Protection Act 1998 and other
         applicable legislation from time to time and provided that no duty of
         confidence and no industry code of practice will or may be breached
         thereby.

5.4      TRUST

(A)      If the Servicer in carrying out its functions as Servicer under this
         Agreement receives (including in its capacity as agent for the
         Mortgages Trustee and the Beneficiaries) any money whatsoever arising
         from the Loans and their Related Security, which money belongs to the
         Mortgages Trustee (as trustee for the Beneficiaries) and is to be paid
         to the Mortgages Trustee GIC Account pursuant to this Agreement or any
         of the other Transaction Documents or otherwise, it will hold such
         monies on trust for the Mortgages Trustee and shall keep such money
         separate from all other monies held by the Servicer and shall, as soon
         as reasonably practicable and in any event within the time limits
         referred to in CLAUSE 5.1, pay the monies into the Mortgages Trustee
         GIC Account.

(B)      All other sums received by the Servicer in respect of the Loans and
         their Related Security shall be held by the Servicer for itself.

<PAGE>
                                       11

6.       NO LIABILITY

6.1      The Servicer shall have no liability for any obligation of a Borrower
         under any Loan comprised in the Portfolio or any Related Security and
         nothing herein shall constitute a guarantee, or similar obligation, by
         the Servicer of any Loan, Mortgage or any Borrower.

6.2      Save as otherwise provided in this Agreement, the Servicer shall have
         no liability for the obligations of the Mortgages Trustee or the
         Beneficiaries under any of the Transaction Documents or otherwise and
         nothing herein shall constitute a guarantee, or similar obligation, by
         the Servicer of the Mortgages Trustee or the Beneficiaries in respect
         of any of them.

7.       NEW LOANS

7.1      The Portfolio may be augmented from time to time by the assignment to
         the Mortgages Trustee on any Distribution Date of a New Portfolio by
         the Seller.

7.2      The assignment of each New Portfolio to the Mortgages Trustee will in
         all cases be subject to the terms set out in the Mortgage Sale
         Agreement including, without limitation, the conditions set out in
         CLAUSES 4 of the Mortgage Sale Agreement and the representations and
         warranties set out in CLAUSE 8 of the Mortgage Sale Agreement.

8.       PRODUCT SWITCHING AND FURTHER ADVANCES

8.1      (a)      The Servicer shall not accept an application for a Further
                  Advance without first having received confirmation in writing
                  from the Seller that the Seller would, if so offered by the
                  Mortgages Trustee, purchase the relevant Loan and its Related
                  Security from the Mortgages Trustee.

         (b)      The Servicer shall not accept an application for a Product
                  Switch without first having received confirmation in writing
                  from the Seller save where the Seller and the Servicer are
                  both Halifax plc that the Seller would, if so offered by the
                  Mortgages Trustee, purchase the relevant Loan and its Related
                  Security from the Mortgages Trustee if on the immediately
                  preceding Distribution Date, the Seller is in breach of the
                  conditions referred to in CLAUSES 4.2(a) to (o) inclusive of
                  the Mortgage Sale Agreement as if references therein to "New
                  Loans" and "New Portfolio" were references to the Loan which
                  would result from the implementation of such Product Switch
                  and as if references to "Assignment Date" were references to
                  the date when the Seller and relevant Borrower complete such
                  Product Switch.

8.2      Subject to complying with the terms of CLAUSE 8.1, where the Servicer
         accepts a Product Switch or a Further Advance, the Servicer shall then
         notify the Seller and the Mortgages Trustee in writing.

8.3      Notwithstanding CLAUSE 8.2, subject to complying with the terms of
         Clause 8.1, the Servicer may accept requests from Borrowers for Product
         Switches and Further Advances provided that the Servicer acts in
         accordance with its then procedure which would be acceptable to a
         Reasonable, Prudent Mortgage Lender.

9.       REDEMPTION OF MORTGAGES

9.1      Upon repayment in full of all sums secured by a Mortgage and/or other
         Related Security comprised in the Portfolio, the Servicer shall, and is
         hereby authorised by the Mortgages Trustee and the Beneficiaries to
         execute a receipt or discharge or relevant HM Land Registry

<PAGE>
                                       12

         Form DS1 of the Mortgage and any such other or further instrument or
         deed of satisfaction regarding such Mortgage and/or the Related
         Security as it considers to be necessary or advisable, to implement an
         Electronic Notification of Discharge to HM Land Registry and to release
         the relevant Title Deeds to the person or persons entitled thereto.

9.2      The Servicer undertakes that prior to any actual release by it of the
         relevant Title Deeds it will take reasonable and appropriate steps to
         satisfy itself that the relevant Title Deeds are being released to the
         person or persons entitled thereto.

9.3      The Servicer shall procure that if, upon completion of the Enforcement
         Procedures, an amount in excess of all sums due by the relevant
         Borrower is recovered or received, the balance, after discharge of all
         sums due by the Borrower, is paid to the person or persons next
         entitled thereto.

10.      POWERS OF ATTORNEY

10.1     For good and valuable consideration and as security for the interests
         of the Mortgages Trustee and the Beneficiaries hereunder, each of the
         Mortgages Trustee and the Beneficiaries hereby appoints the Servicer as
         its attorney on its behalf, and in its own or the attorney's name, for
         the following purposes:

         (A)      executing all documents necessary for the purpose of
                  discharging a Mortgage comprised in the Portfolio which has
                  been repaid in full and any Related Security or for the sale
                  of a Property as Mortgagee;

         (B)      executing all documents and implementing all Electronic
                  Notifications of Discharge to HM Land Registry necessary for
                  the purpose of releasing a Borrower in accordance with CLAUSE
                  9;

         (C)      executing all documents and doing all such acts and things
                  which in the reasonable opinion of the Servicer are necessary
                  or desirable for the efficient provision of the Services
                  hereunder; and

         (D)      exercising its rights, powers and discretion under the
                  Mortgages including the right to fix the Mortgages Trustee
                  Variable Base Rate and the Mortgages Trustee Tracker Rate or
                  any related rights,

         provided that, for the avoidance of doubt, these Powers of Attorney
         shall not authorise the Servicer to sell any of the Loans and/or their
         Related Security comprised in the Portfolio except as specifically
         authorised in the Transaction Documents. For the avoidance of doubt,
         neither the Mortgages Trustee nor Funding 1 shall be liable or
         responsible for the acts of the Servicer or any failure by the Servicer
         to act under or in respect of these Powers of Attorney.

10.2     The appointments contained in CLAUSE 10.1 shall be irrevocable unless
         and until following a Termination Event the Mortgages Trustee and/or
         Funding 1 and the Security Trustee serves notice pursuant to CLAUSE 21
         to terminate the Servicer's appointment under this Agreement upon which
         the appointments contained in CLAUSE 10.1 shall be automatically
         revoked.

11.      COSTS AND EXPENSES

11.1     The Mortgages Trustee (on behalf of the Beneficiaries) will on each
         Distribution Date reimburse, in accordance with CLAUSE 10.2 of the
         Mortgages Trust Deed, the Servicer for all out-of-pocket costs,
         expenses and charges (together with any amounts in respect of

<PAGE>
                                       13

         Irrecoverable Value Added Tax due thereon) properly incurred by the
         Servicer in the performance of the Services including any such costs,
         expenses or charges not reimbursed to the Servicer on any previous
         Distribution Date and the Servicer shall supply the Mortgages Trustee
         with a copy of an appropriate VAT invoice issued by the person making
         the supply.

11.2     The Servicer will use reasonable endeavours to recover from the
         relevant Borrowers all costs and expenses incurred by the Servicer
         which are properly recoverable from those Borrowers under the relevant
         Mortgage Conditions.

12.      INFORMATION

12.1     MAINTENANCE OF RECORDS

(A)      Subject to CLAUSE 18, the Servicer shall keep the Customer Files
         relating to the Portfolio in safe custody and shall take appropriate
         technical and organisational measures against the unauthorised or
         unlawful processing of personal data and against accidental loss or
         destruction of, or damage to, personal data. The Servicer shall
         maintain in an adequate form such records as are necessary to enforce
         each Mortgage comprised in the Portfolio and, where relevant, any other
         Related Security.

(B)      A duplicate of any computer records held by the Servicer which contains
         information relating to the Loans and the Related Security shall be
         lodged by the Servicer on a daily basis at the offices of the Seller at
         the Pudsey Data Centre or at such other locations selected by the
         Servicer, so long as such location is a location separate from that in
         which the original computer records are stored and in an environment
         conducive to the safe storage of electronic media, such records to be
         held to the order of the Mortgages Trustee and to be replaced by a
         revised duplicate as and when the original records are revised. The
         Servicer shall keep the Mortgages Trustee informed of the location of
         the Customer Files and duplicate computer records.

12.2     USE OF I.T. SYSTEMS

(A)      The Servicer represents and warrants that at the date hereof in respect
         of the software which is used by the Servicer in providing the
         Services, it shall for the duration of this Agreement:

         (i)      ensure that it has in place all necessary licences and/or
                  consents from the respective licensor or licensors (if any) of
                  such software; and

         (ii)     except in so far as it would breach any other of its legal
                  obligations, grant to any person to whom it may sub-contract
                  or delegate the performance of all or any of its powers and
                  obligations under this Agreement and/or to such person as the
                  Mortgages Trustee and the Beneficiaries elect as a substitute
                  servicer in accordance with the terms of this Agreement a
                  licence to use any proprietary software together with any
                  updates which may be made thereto from time to time.

(B)      The Servicer shall use reasonable endeavours to maintain in working
         order the information technology systems used by the Servicer in
         providing the Services.

(C)      The Servicer shall pass to any person to whom it may sub-contract or
         delegate the performance of all or any of its powers and obligations
         under this Agreement and/or to such person as the Mortgages Trustee and
         the Beneficiaries elect as a substitute servicer in accordance with the
         terms of this Agreement the benefit of any warranties in relation to
         the software insofar as the same are capable of assignment.

<PAGE>
                                       14

12.3     ACCESS TO BOOKS AND RECORDS

         Subject to all applicable laws, the Servicer shall permit the Mortgages
         Trustee and Funding 1 (and their auditors) and the Security Trustee and
         any other person nominated by the Beneficiaries (to whom the Servicer
         has no reasonable objection) upon reasonable notice during normal
         office hours to have access, or procure that such person or persons are
         granted access, to all books of record and account (including, for the
         avoidance of doubt, the Title Deeds and Customer Files) relating to the
         administration of the Loans and the Related Security comprised in the
         Portfolio and related matters in accordance with this Agreement.

12.4     INFORMATION COVENANTS

(A)      The Servicer shall provide the Mortgages Trustee, the Beneficiaries,
         the Joint Lead Managers and the Rating Agencies quarterly with a report
         in, or substantially in, the form set out in SCHEDULE 2 and shall
         assist the Cash Manager in the production of quarterly reports
         substantially in the forms set out in Schedule 3 of the Cash Management
         Agreement.

(B)      The Servicer shall notify the Rating Agencies in writing of the details
         of (i) any material amendment to the Transaction Documents, (ii) any
         proposed material change in the valuation procedures or policies
         applied or to be applied in relation to Properties by it in connection
         with its mortgage business (details of which change may be included in
         a report provided under paragraph (A)) and (iii) any other information
         relating to its mortgage business and financial condition as the Rating
         Agencies may reasonably request in connection with the ratings of the
         First Issuer Notes and any New Notes and other matters contemplated by
         the Transaction, provided that such request does not adversely
         interfere with the Servicer's day to day provision of the Services
         under the other terms of this Agreement.

(C)      The Servicer shall, at the request of Funding 1 and the Security
         Trustee (where the Servicer is the Seller) and at the request of the
         Beneficiaries (where the Servicer is no longer the Seller), furnish
         Funding 1, the Security Trustee and/or the Beneficiaries (as
         appropriate) and the Rating Agencies with such other information
         relating to its business and financial condition as it may be
         reasonable for Funding 1, the Security Trustee and/or the Beneficiaries
         (as appropriate) to request in connection with the ratings of the First
         Issuer Notes and any New Notes and other matters contemplated by the
         Transaction, provided that Funding 1, the Security Trustee or the
         Beneficiaries (as appropriate) shall not make such a request more than
         once every three months unless, in the belief of Funding 1, the
         Security Trustee or the Beneficiaries (as appropriate), an Intercompany
         Loan Event of Default or a Termination Event shall have occurred and is
         continuing or may reasonably be expected to occur.

(D)      The Servicer shall make available to beneficial owners of the Issuer
         Notes, who have provided beneficial ownership certification as
         described herein, on a monthly basis a report containing information
         about the loans in Mortgages Trust.

13.      REMUNERATION

         The Mortgages Trustee (on behalf of the Beneficiaries) shall pay to the
         Servicer for its Services hereunder an administration fee (the
         "ADMINISTRATION FEE") (inclusive of Value Added Tax) which:

         (A)      shall be calculated in relation to each Distribution Period on
                  the basis of the number of days elapsed and a 365 day year at
                  the rate of 0.05 per cent. per annum, inclusive of Value Added
                  Tax, on the aggregate amount of the Trust Property as at close
                  of

<PAGE>
                                       15

                  business on the preceding Funding 1 Interest Payment Date (or,
                  as applicable, the Initial Closing Date); and

         (B)      shall be paid to the Servicer in arrear on each Distribution
                  Date in the manner contemplated by and in accordance with the
                  provisions of CLAUSE 10.2 of the Mortgages Trust Deed.

14.      INSURANCES

14.1     The Servicer will administer the arrangements for insurance to which
         the Mortgages Trustee is a party or in which either the Seller or the
         Mortgages Trustee (on behalf of the Beneficiaries) has an interest and
         which relate to the Loans and the Mortgages comprised in the Portfolio
         or the business of the Mortgages Trustee. In particular, but without
         limitation, the Servicer shall promptly notify the Mortgages Trustee
         and the Beneficiaries and the Trustee of the existence of any insurance
         policies to which the Seller is a party or in which it has an interest
         in addition to those specifically referred to in the definition of
         "Halifax Insurance Policies" in the Master Definitions and Construction
         Schedule.

14.2     The Servicer shall use its reasonable endeavours to credit to the
         Mortgages Trustee GIC Account all proceeds received from any claim made
         under any Insurance Policy in relation to any Loan or its Related
         Security by close of business on the London Business Day which
         immediately follows the day on which such amounts are received or
         credited by the Servicer and which is to be applied either in whole or
         in part in repayment of a Loan.

15.      HALIFAX INSURANCE POLICIES

15.1     The Servicer shall not knowingly take or omit to take any action which
         would:

         (A)      result in the avoidance or termination of any of the Halifax
                  Insurance Policies in relation to any Loans and Mortgages to
                  which any Halifax Insurance Policy applies; or

         (B)      reduce the amount payable on any claim made on behalf of the
                  Mortgages Trustee (as trustee for the Beneficiaries) under any
                  Halifax Insurance Policy; or

         (C)      invalidate any Halifax Insurance Policy.

15.2     The Servicer shall prepare and submit any claim under the Halifax
         Insurance Policies in accordance with the requirements of the relevant
         Halifax Insurance Policy and otherwise with the usual procedures
         undertaken by a Reasonable, Prudent Mortgage Lender on behalf of the
         Mortgages Trustee and the Beneficiaries and shall comply with the other
         requirements of the insurer under the relevant Halifax Insurance
         Policy.

15.3     If the Seller's Policy requires the Servicer to make a claim under the
         relevant MIG Policy and the Servicer has failed to make such a claim,
         then the Beneficiaries may direct the Mortgages Trustee on their behalf
         to direct the Servicer to make a claim or, in default thereof by the
         Servicer, the Beneficiaries may direct the Mortgages Trustee to itself
         make a claim under such policy and the Servicer shall, within ten
         London Business Days of receiving a written request from the Mortgages
         Trustee (as trustee for the Beneficiaries), provide the Mortgages
         Trustee with such information as the Mortgages Trustee may require to
         enable it to make a claim under the relevant MIG Policy.

<PAGE>
                                       16

16.      BUILDINGS POLICIES

16.1     The Servicer shall not knowingly take any action or omit to take any
         action which would result in the avoidance or termination of any
         applicable Buildings Policy or would reduce the amount payable on any
         claim thereunder.

16.2     Upon receipt of notice that any Borrower whose Loan is secured by a
         mortgage of a leasehold Property has failed to make a payment when due
         of any sums due under the relevant lease in respect of the insurance of
         the property the Servicer may debit that Borrower's account with the
         relevant amount which shall then be paid to the landlord.

16.3     If the Servicer becomes aware that a Borrower has failed to pay
         premiums due under any Buildings Policy, the Servicer shall take such
         action as would a Reasonable, Prudent Mortgage Lender with a view to
         ensuring that the relevant Property continues to be insured in
         accordance with the applicable Mortgage Terms or the Alternative
         Insurance Recommendations.

17.      TITLE DEEDS

17.1     The Servicer shall keep the Title Deeds relating to the Portfolio in
         safe custody and shall not without the prior written consent of the
         Mortgages Trustee and the Beneficiaries part with possession, custody
         or control of them otherwise than to a sub-contractor or delegate
         appointed pursuant to CLAUSE 3.2 or to a solicitor, licensed
         conveyancer or authorised practitioner, subject to the usual
         undertaking to hold them to the order of the Seller (who in turn will
         hold them to the order of the Mortgages Trustee (as trustee for the
         Beneficiaries)) or to H.M. Land Registry or, upon redemption of the
         relevant Loan, to the order of the Borrower.

17.2     The Title Deeds relating to the Portfolio shall be kept in such manner
         so that a computer record is maintained of their location and they are
         identifiable and retrievable by reference to an account number and pool
         identifier and identifiable and distinguishable from the title deeds
         relating to other properties and mortgages in respect of which the
         Servicer is mortgagee or servicer. In the event of receipt by the
         Servicer of notice that the short-term, unsecured, unsubordinated and
         unguaranteed debt of the Servicer is rated less than A-1 by S&P and P-1
         by Moody's and F1 by Fitch, the Servicer shall use reasonable
         endeavours to ensure that the Title Deeds are identified as distinct
         from the title deeds of other properties and mortgages which do not
         form part of the Portfolio.

17.3     The Servicer shall provide access or procure that access is provided to
         the Title Deeds and other records relating to the administration of the
         Loans and Mortgages in the Portfolio to the Mortgages Trustee, the
         Beneficiaries, the Security Trustee and their respective agents at all
         reasonable times and upon reasonable notice. The Servicer acknowledges
         that the Title Deeds and Customer Files relating to the Portfolio in
         its possession, custody or control will be held to the order of the
         Mortgages Trustee (as trustee for the Beneficiaries) and that it has,
         in its capacity as Servicer, no beneficial interest therein and the
         Servicer (in its capacity as such but not in its capacity as a
         Beneficiary) irrevocably waives any rights or any Security Interest
         which it might have therein or to which it might at any time be
         entitled.

17.4     The Servicer shall, forthwith on the termination of the appointment of
         the Servicer pursuant to CLAUSE 21, deliver the Title Deeds and
         Customer Files to or to the order of the Mortgages Trustee or to such
         person as the Mortgages Trustee elects as a substitute servicer in
         accordance with the terms of this Agreement upon written request by the
         Mortgages Trustee made at any time on or after notice of, or on or
         after, termination of the appointment of the Servicer pursuant to
         CLAUSE 21.

<PAGE>
                                       17

17.5     The Servicer undertakes that it will use all reasonable efforts to
         obtain, as soon as practicable and, in any event, in the case of the
         Mortgages in the Initial Portfolio, on or prior to the Distribution
         Date falling in June, 2003, and in the case of Mortgages which relate
         to New Loans, on or prior to the first Distribution Date falling after
         the first anniversary of the date on which the New Loans are purchased
         from the Seller, details of the title numbers applicable to Properties
         comprising registered land or land which is the subject of an
         application for first registration. The Servicer shall include in the
         quarterly report to be delivered in accordance with CLAUSE 12.4 of this
         Agreement details of such title numbers relating to the Initial
         Portfolio as are then known to the Servicer at the time of such report
         together with such other information relating thereto as the Mortgages
         Trustee may reasonably request.

18.      DATA PROTECTION

         The Servicer represents that as at the date hereof the Servicer has and
         hereafter it will maintain on behalf of itself and on behalf of the
         Mortgages Trustee (as trustee for the Beneficiaries) all appropriate
         registrations, licences and authorities (if any) required under the
         Data Protection Act 1998 to enable each of them to perform their
         respective obligations under this Agreement. In addition to the
         foregoing and notwithstanding any of the other provisions of this
         Agreement, each of the Servicer and the Mortgages Trustee hereby agree
         and covenant as follows:

         (A)      that only data that is not "PERSONAL DATA" (as described in
                  the Data Protection Act 1998) may be transferred by the
                  Servicer to the Mortgages Trustee or any other entity located
                  in Jersey (unless Jersey is declared an "approved state" by
                  the European Commission, in which case the Servicer may
                  transfer such personal data to the Mortgages Trustee in
                  Jersey);

         (B)      that, to the extent that circumstances enable the Mortgages
                  Trustee to exercise its right to demand that the Servicer
                  transfer inter alia personal data to the Mortgages Trustee,
                  the Servicer shall only transfer such personal data to an
                  agent of the Mortgages Trustee that is located in the United
                  Kingdom and maintains all appropriate registrations, licences
                  and authorities (if any) required under the Data Protection
                  Act 1998 (the "Agent"), and that the Mortgages Trustee will
                  ensure that the Agent (i) does not transfer such personal data
                  out of the United Kingdom; and (ii) will comply with the
                  provisions of the Data Protection Act 1998;

         (C)      that if, at the date at which circumstances enable the
                  Mortgages Trustee to exercise its right to demand that the
                  Servicer transfer inter alia personal data to the Mortgages
                  Trustee, Jersey has been declared an "approved state" by the
                  European Commission then the Servicer shall transfer the
                  relevant personal data to the Mortgages Trustee;

         (D)      that, to the extent that circumstances enable the Mortgages
                  Trustee to exercise its right to demand that the Servicer
                  transfer inter alia personal data to the Mortgages Trustee,
                  the Servicer notify each Borrower that the Mortgages Trustee
                  is a "DATA CONTROLLER" (as defined in the Data Protection Act
                  1998) and provide each such Borrower with the address of the
                  Mortgages Trustee;

         (E)      that the Servicer and the Mortgages Trustee will only use any
                  data in relation to the Loans and the related Borrowers for
                  the purposes of administering and/or managing the Portfolio,
                  and will not sell such data to any third party or allow any
                  third party to use such data other than in compliance with the
                  conditions stated in this Clause 18 and for the sole purpose
                  of administering and/or managing the Portfolio;

<PAGE>
                                       18

         (F)      that the Mortgages Trustee will comply with the provisions of
                  the Data Protection (Jersey) Law 1987 (as amended) and (so
                  long as the provisions of the Data Protection Act 1998 do not
                  conflict with the provisions of the Data Protection (Jersey)
                  Law 1987) with the provisions of the Data Protection Act 1998
                  (as amended);

         (G)      that, upon the request of a Borrower, the Servicer will inform
                  such Borrower that both the Servicer and the Mortgages Trustee
                  are "data controllers" as described in the Data Protection Act
                  1998; and

         (H)      that both the Servicer and the Mortgages Trustee shall
                  maintain a written record of their reasons for applying the
                  Data Protection Order 2000 (as set forth under the Conditions
                  under paragraph 3 of Part II of Schedule I of such Order).

19.      COVENANTS OF SERVICER

19.1     The Servicer hereby covenants with and undertakes to each of the
         Mortgages Trustee, the Beneficiaries and the Security Trustee that
         without prejudice to any of its specific obligations hereunder it will:

         (A)      administer the Loans and their Related Security as if the same
                  had not been assigned to the Mortgages Trustee but had
                  remained on the books of the Seller;

         (B)      provide the Services in such manner and with the same level of
                  skill, care and diligence as would a Reasonable, Prudent
                  Mortgage Lender;

         (C)      comply with any proper directions, orders and instructions
                  which the Mortgages Trustee or the Beneficiaries may from time
                  to time give to it in accordance with the provisions of this
                  Agreement and, in the event of any conflict, those of the
                  Mortgages Trustee shall prevail;

         (D)      keep in force all licences, approvals, authorisations and
                  consents which may be necessary in connection with the
                  performance of the Services and prepare and submit on a timely
                  basis all necessary applications and requests for any further
                  approval, authorisation, consent or licence required in
                  connection with the performance of the Services and in
                  particular any necessary registrations under the Data
                  Protection Act 1998;

         (E)      save as otherwise agreed with the Mortgages Trustee and each
                  of the Beneficiaries, provide free of charge to the Mortgages
                  Trustee and the Beneficiaries, office space, facilities,
                  equipment and staff sufficient to fulfil the obligations of
                  the Mortgages Trustee and the Beneficiaries under this
                  Agreement;

         (F)      not knowingly fail to comply with any legal requirements in
                  the performance of the Services;

         (G)      make all payments required to be made by it pursuant to this
                  Agreement on the due date for payment thereof in sterling (or
                  as otherwise required under the Transaction Documents) in
                  immediately available funds for value on such day without
                  set-off (including, without limitation, in respect of any fees
                  owed to it) or counterclaim;

         (H)      not without the prior written consent of the Security Trustee
                  amend or terminate any of the Transaction Documents save in
                  accordance with their terms; and

<PAGE>
                                       19

         (I)      forthwith upon becoming aware of any event which may
                  reasonably give rise to an obligation of the Seller to
                  repurchase any Loan pursuant to the Mortgage Sale Agreement,
                  notify the Mortgages Trustee and the Beneficiaries in writing
                  of such event.

19.2     The covenants of the Servicer in CLAUSE 19.1 shall remain in force
         until this Agreement is terminated but without prejudice to any right
         or remedy of the Mortgages Trustee and/or the Seller and/or Funding 1
         arising from breach of any such covenant prior to the date of
         termination of this Agreement.

20.      SERVICES NON-EXCLUSIVE

         Nothing in this Agreement shall prevent the Servicer from rendering or
         performing services similar to those provided for in this Agreement to
         or for itself or other persons, firms or companies or from carrying on
         business similar to or in competition with the business of the
         Mortgages Trustee and the Beneficiaries.

21.      TERMINATION

21.1     If any of the following events ("SERVICER TERMINATION EVENTS") shall
         occur:

         (A)      default is made by the Servicer in the payment on the due date
                  of any payment due and payable by it under this Agreement and
                  such default continues unremedied for a period of three London
                  Business Days after the earlier of the Servicer becoming aware
                  of such default and receipt by the Servicer of written notice
                  from Funding 1, the Security Trustee and the Mortgages Trustee
                  requiring the same to be remedied;

         (B)      default is made by the Servicer in the performance or
                  observance of any of its other covenants and obligations under
                  this Agreement, which in the reasonable opinion of the
                  Security Trustee is materially prejudicial to the interests of
                  Funding 1 and/or the Issuers under the Intercompany Loans
                  and/or the interests of the holders of the First Issuer Notes
                  and any New Notes from time to time and such default continues
                  unremedied for a period of twenty London Business Days after
                  the earlier of the Servicer becoming aware of such default and
                  receipt by the Servicer of written notice from Funding 1 and
                  the Security Trustee requiring the same to be remedied,
                  provided however that where the relevant default occurs as a
                  result of a default by any person to whom the Servicer has
                  sub-contracted or delegated part of its obligations hereunder,
                  such default shall not constitute a Termination Event if,
                  within such period of ten London Business Days of receipt of
                  such notice from Funding 1 and the Security Trustee, the
                  Servicer terminates the relevant sub-contracting or delegation
                  arrangements and takes such steps as Funding 1 and the
                  Security Trustee may in their absolute discretion specify to
                  remedy such default or to indemnify the Mortgages Trustee and
                  the Beneficiaries against the consequences of such default;

         (C)      an order is made or an effective resolution passed for winding
                  up the Servicer;

         (D)      the Servicer ceases or threatens to cease to carry on its
                  business or a substantial part of its business or stops
                  payment or threatens to stop payment of its debts or the
                  Servicer is deemed unable to pay its debts within the meaning
                  of Sections 123(1)(a), (b), (c) or (d) of the Insolvency Act
                  1986 (as that section may be amended) or becomes unable to pay
                  its debts as they fall due or the value of its assets falls to
                  less than the amount of its liabilities (taking into account
                  for both these purposes its contingent and prospective
                  liabilities) or otherwise becomes insolvent; or

<PAGE>
                                       20

         (E)      proceedings are initiated against the Servicer under any
                  applicable liquidation, administration, insolvency,
                  composition, reorganisation (other than a reorganisation where
                  the Servicer is solvent) or other similar laws, save where
                  such proceedings are being contested in good faith by the
                  Servicer, or an administrative or other receiver,
                  administrator or other similar official is appointed in
                  relation to the Servicer or in relation to the whole or any
                  substantial part of the undertaking or assets of the Servicer
                  or an encumbrancer takes possession of the whole or any
                  substantial part of the undertaking or assets of the Servicer,
                  or a distress, execution or diligence or other process is
                  levied or enforced upon or sued out against the whole or any
                  substantial part of the undertaking or assets of the Servicer
                  and in any of the foregoing cases it is not discharged within
                  thirty London Business Days; or if the Servicer initiates or
                  consents to judicial proceedings relating to itself under any
                  applicable liquidation, administration, insolvency,
                  composition, reorganisation or other similar laws or makes a
                  conveyance or assignment for the benefit of its creditors
                  generally, or

         (F)      the Board of Funding 1 resolves, after due consideration and
                  acting reasonably, that the appointment of the servicer should
                  be terminated,

         then the Mortgages Trustee and/or Funding 1 and the Security Trustee
         may at once or at any time thereafter while such default continues by
         notice in writing to the Servicer terminate its appointment as Servicer
         under this Agreement with effect from a date (not earlier than the date
         of the notice) specified in the notice. Upon termination of the
         Servicer as servicer under this Agreement, the Security Trustee shall
         use its reasonable endeavours to appoint a substitute servicer that
         satisfies the conditions set forth in CLAUSES 21.2(C), (D) and (E).

21.2     The appointment of the Servicer under this Agreement may be terminated
         upon the expiry of not less than 12 months' notice of termination given
         by the Servicer to the Mortgages Trustee and the Beneficiaries provided
         that:

         (A)      the Mortgages Trustee and the Beneficiaries consent in writing
                  to such termination;

         (B)      a substitute servicer shall be appointed, such appointment to
                  be effective not later than the date of such termination and
                  the Servicer shall notify the Rating Agencies in writing of
                  the identity of such substitute servicer;

         (C)      such substitute servicer has experience of administering
                  mortgages of residential property in the United Kingdom and is
                  approved by the Mortgages Trustee and the Beneficiaries;

         (D)      such substitute servicer enters into an agreement
                  substantially on the same terms as the relevant provisions of
                  this Agreement and the Servicer shall not be released from its
                  obligations under the relevant provisions of this Agreement
                  until such substitute servicer has entered into such new
                  agreement; and

         (E)      the then current ratings (if any) of the First Issuer Notes or
                  any New Notes are not adversely affected as a result thereof,
                  unless otherwise agreed by an Extraordinary Resolution (as
                  defined in the Note Trust Deed) of the holders of the relevant
                  class of Notes.

21.3     On and after termination of the appointment of the Servicer under this
         Agreement pursuant to this CLAUSE 21, all authority and power of the
         Servicer under this Agreement shall be terminated and be of no further
         effect and the Servicer shall not thereafter hold itself out in

<PAGE>
                                       21

         any way as the agent of the Mortgages Trustee and/or the Beneficiaries
         pursuant to this Agreement.

21.4     Upon termination of the appointment of the Servicer under this
         Agreement pursuant to this CLAUSE 21, the Servicer shall:

         (A)      forthwith deliver (and in the meantime hold on trust for, and
                  to the order of, the Mortgages Trustee) to the Mortgages
                  Trustee or as it shall direct the Customer Files, the Title
                  Deeds, all books of account, papers, records, registers,
                  correspondence and documents in its possession or under its
                  control relating to the affairs of or belonging to the
                  Mortgages Trustee (as trustee for the Beneficiaries) and the
                  Mortgages in the Portfolio and any other Related Security, (if
                  practicable, on the date of receipt) any monies then held by
                  the Servicer on behalf of the Mortgages Trustee and any other
                  assets of the Mortgages Trustee and the Beneficiaries;

         (B)      take such further action as the Mortgages Trustee, Funding 1
                  and the Security Trustee may reasonably direct at the expense
                  of the Beneficiaries (including in relation to the appointment
                  of a substitute servicer) provided that the Mortgages Trustee
                  shall not be required to take or direct to be taken such
                  further action unless it has been indemnified to its
                  satisfaction;

         (C)      provide all relevant information contained on computer records
                  in the form of magnetic tape, together with details of the
                  layout of the files encoded on such magnetic tapes;

         (D)      co-operate and consult with and assist the Mortgages Trustee,
                  Funding 1, the Security Trustee and their nominees (which
                  shall, for the avoidance of doubt, include any new servicer
                  appointed by any of them) for the purposes of explaining the
                  file layouts and the format of the magnetic tapes generally
                  containing such computer records on the computer system of the
                  Mortgages Trustee or such nominee; and

         (E)      permit the Mortgages Trustee, Funding 1 and the Security
                  Trustee to have access at reasonable times to the Halifax
                  Insurance Policies.

21.5     The Servicer shall deliver to the Mortgages Trustee and the
         Beneficiaries as soon as reasonably practicable but in any event within
         five days of becoming aware thereof a notice of any Termination Event
         or any event which with the giving of notice or lapse of time or
         certification would constitute the same. Such notification shall
         specify which event in CLAUSE 21 has occurred and was the cause of such
         Termination Event (or any event which the giving of notice or lapse of
         time or certification would constitute a Termination Event), a
         description of the details of such Termination Event, and, if relevant,
         a reference to the provision in this Agreement or the other Transaction
         Documents which the Servicer has breached.

21.6     Termination of this Agreement or the appointment of the Servicer under
         this Agreement shall be without prejudice to the liabilities of the
         Mortgages Trustee and the Beneficiaries to the Servicer or vice versa
         incurred before the date of such termination. The Servicer shall have
         no right of set-off or any lien in respect of such amounts against
         amounts held by it on behalf of the Mortgages Trustee.

21.7     This Agreement shall terminate at such time as Funding 1 has no further
         interest in any of the Loans or the Mortgages which have been comprised
         in the Portfolio.

<PAGE>
                                       22

21.8     On termination of the appointment of the Servicer under the provisions
         of this Clause 21, the Servicer shall be entitled to receive all fees
         and other monies accrued up to the date of termination but shall not be
         entitled to any other or further compensation. Such monies so
         receivable by the Servicer shall be paid by the Mortgages Trustee on
         the dates on which they would otherwise have fallen due hereunder. For
         the avoidance of doubt, such termination shall not affect the
         Servicer's rights to receive payment of all amounts (if any) due to it
         from the Mortgages Trustee other than under this Agreement.

21.9     Prior to termination of this Agreement, the Servicer, the Seller, the
         Security Trustee, the Mortgages Trustee and Funding 1 shall co-operate
         to obtain the agreement of the Borrowers to a new bank mandate
         permitting the Mortgages Trustee to operate the Direct Debiting Scheme.

21.10    Any provision of this Agreement which is stated to continue after
         termination of the Agreement shall remain in full force and effect
         notwithstanding termination.

22.      FURTHER ASSURANCE

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

22.2     Without prejudice to the generality of CLAUSE 22.1, the Mortgages
         Trustee and the Beneficiaries shall upon request by the Servicer
         forthwith give to the Servicer such further powers of attorney or other
         written authorisations, mandates or instruments as are necessary to
         enable the Servicer to perform the Services.

22.3     In the event that there is any change in the identity of the Mortgages
         Trustee or an additional Mortgages Trustee is appointed, the remaining
         Mortgages Trustee and/or the retiring Mortgages Trustee, as the case
         may be, shall execute such documents with any other parties to this
         Agreement and take such actions as such new Mortgages Trustee may
         reasonably require for the purposes of vesting in such new Mortgages
         Trustee the rights of the Mortgages Trustee under this Agreement and
         releasing the retiring Mortgages Trustee from further obligations
         thereunder and while any Note remains outstanding shall give notice
         thereof to the Rating Agencies.

22.4     Nothing herein contained shall impose any obligation or liability on
         the Mortgages Trustee to assume or perform any of the obligations of
         the Servicer hereunder or render it liable for any breach thereof.

23.      MISCELLANEOUS

23.1     Subject to CLAUSE 23.2, in the event that the funds available to the
         Mortgages Trustee on any Funding 1 Interest Payment Date are not
         sufficient to satisfy in full the aggregate amount payable to the
         Servicer by the Mortgages Trustee on such Funding 1 Interest Payment
         Date then the amount payable to the Servicer on such Funding 1 Interest
         Payment Date shall be reduced by the amount of the shortfall and such
         shortfall shall (subject always to the provisions of this CLAUSE 23) be
         payable on the immediately succeeding Funding 1 Interest Payment Date.

23.2     In the event that:

         (A)      after redemption in full of the Intercompany Loans; or

<PAGE>
                                       23

         (B)      after service of an Intercompany Loan Acceleration Notice and
                  payment of all other prior claims,

         the remaining sums available to the Mortgages Trustee or remaining
         proceeds of enforcement are insufficient to satisfy in full the
         outstanding fees or other claims of the Servicer, such fees shall be
         reduced by the amount of the deficiency.

23.3     Each of the Seller and the Servicer agrees that it will not:

         (A)      set off or purport to set off any amount which the Mortgages
                  Trustee, Funding 1 or each Issuer is or will become obliged to
                  pay to it under any of the Transaction Documents against any
                  amount from time to time standing to the credit of or to be
                  credited to the Mortgages Trustee GIC Account, the Funding 1
                  GIC Account, the Funding 1 Transaction Account or any Issuer
                  Transaction Account or in any other account prior to transfer
                  to the Mortgages Trustee GIC Account, the Funding 1 GIC
                  Account, the Funding 1 Transaction Account or any Issuer
                  Account, as appropriate; or

         (B)      make or exercise any claims or demands, any rights of
                  counterclaim or any other equities against or withhold payment
                  of any and all sums of money which may at any time and from
                  time to time be standing to the credit of the Mortgages
                  Trustee GIC Account, the Funding 1 GIC Account, the Funding 1
                  Transaction Account or the relevant Issuer Account.

23.4     The Servicer agrees that for so long as any First Issuer Notes and New
         Notes are outstanding it will not petition nor commence proceedings for
         the administration or winding up of the Mortgages Trustee or Funding 1
         or any Issuer nor participate in any ex parte proceedings with regard
         thereto.

23.5     In relation to all sums due and payable by the Mortgages Trustee to the
         Servicer, the Servicer agrees that it shall have recourse only to sums
         paid to or received by (or on behalf of) the Mortgages Trustee pursuant
         to the provisions of the Mortgage Sale Agreement, the other Transaction
         Documents and in relation to the Mortgages.

23.6     For the avoidance of doubt, neither Beneficiary shall be liable to pay
         any amounts due under CLAUSES 11 and 13 without prejudice to the
         obligations of the Mortgages Trustee in respect of such amounts.

23.7     Notwithstanding any other provisions of this Agreement, all obligations
         to, and rights of, Funding 1 under or in connection with this Agreement
         (other than its obligations under Clause 24) shall automatically
         terminate upon the discharge in full of all amounts owing by it under
         any Intercompany Loan Agreement, provided that this shall be without
         prejudice to any claims in respect of such obligations and rights
         arising on or prior to such date.

24.      CONFIDENTIALITY

         During the continuance of this Agreement or after its termination, each
         of the Mortgages Trustee and the Beneficiaries shall use its best
         endeavours not to disclose to any person, firm or company whatsoever
         any information relating to the business, finances or other matters of
         a confidential nature of any other party hereto of which it may
         exclusively by virtue of being party to the Transaction Documents have
         become possessed and shall use all reasonable endeavours to prevent any
         such disclosure as aforesaid, provided however that the provisions of
         this CLAUSE 24 shall not apply:

<PAGE>
                                       24

         (A)      to any information already known to the Mortgages Trustee or
                  the Beneficiaries otherwise than as a result of entering into
                  any of the Transaction Documents;

         (B)      to any information subsequently received by the Mortgages
                  Trustee or the Beneficiaries which it would otherwise be free
                  to disclose;

         (C)      to any information which is or becomes public knowledge
                  otherwise than as a result of the conduct of the Mortgages
                  Trustee or the Beneficiaries;

         (D)      to any extent that the Mortgages Trustee or the Beneficiaries
                  is required to disclose the same pursuant to any law or order
                  of any court or pursuant to any direction, request or
                  requirement (whether or not having the force of law) of any
                  central bank or any governmental or other authority
                  (including, without limitation, any official bank examiners or
                  regulators);

         (E)      to the extent that the Mortgages Trustee or the Beneficiaries
                  needs to disclose the same for determining the existence of,
                  or declaring, an Intercompany Loan Event of Default or a
                  Termination Event, the protection or enforcement of any of its
                  rights under any of the Transaction Documents or in connection
                  herewith or therewith or for the purpose of discharging, in
                  such manner as it thinks fit, its duties under or in
                  connection with such agreements in each case to such persons
                  as require to be informed of such information for such
                  purposes; or

         (F)      in relation to any information disclosed to the professional
                  advisers of the Mortgages Trustee or the Beneficiaries or (in
                  connection with the review of current ratings of the First
                  Issuer Notes or any New Notes or with a prospective rating of
                  any debt to be issued by an Issuer) to any credit rating
                  agency or any prospective new Servicer or Mortgages Trustee.

25.      NOTICES

         Any notices to be given pursuant to this Agreement to any of the
         parties hereto shall be sufficiently served if sent by prepaid first
         class post, by hand or facsimile transmission and shall be deemed to be
         given (in the case of facsimile transmission) when despatched, (where
         delivered by hand) on the day of delivery if delivered before 17.00
         hours on a London Business Day or on the next London Business Day if
         delivered thereafter or (in the case of first class post) when it would
         be received in the ordinary course of the post and shall be sent:

         (A)      in the case of the Servicer, to Halifax plc, Trinity Road,
                  Halifax, West Yorkshire HX1 2RG (facsimile number +44 (0) 1422
                  391777) for the attention of Mortgage Securitisation Manager
                  with a copy to HBOS Treasury Services plc, 33 Old Broad
                  Street, London EC2N 1HZ (facsimile number +44 (020) 7574 8784)
                  for the attention of Head of Capital Markets and
                  Securitisation;

         (B)      in the case of the Mortgages Trustee, to Permanent Mortgages
                  Trustee Limited, 47 Esplanade, St. Helier, Jersey JE1 0BD
                  (facsimile number +44 (0) 1534 726391) for the attention of
                  the Secretary with a copy to HBOS Treasury Services plc, 33
                  Old Broad Street, London EC2N 1HZ (facsimile number +44 (020)
                  7574 8784) for the attention of Head of Capital Markets and
                  Securitisation;

         (C)      in the case of the Seller, to Halifax plc, Trinity Road,
                  Halifax, West Yorkshire HX1 2RG (facsimile number +44 (0) 1422
                  391777) for the attention Mortgage Securitisation Manager with
                  a copy to HBOS Treasury Services PLC, 33 Old Broad

<PAGE>
                                       25

                  Street, London EC2N 1HZ (facsimile number +44 (020) 7574 8784)
                  for the attention of Head of Capital Markets and
                  Securitisation;

         (D)      in the case of Funding 1, to Permanent Funding (No. 1)
                  Limited, Blackwell House, Guildhall Yard, London EC2V 5AE
                  (facsimile number +44 (020) 7556 0975) for the attention of
                  the Secretary with a copy to HBOS Treasury Services plc, 33
                  Old Broad Street, London EC2N 1HZ (facsimile number+44 (020)
                  7574 8784) for the attention of Head of Capital Markets and
                  Securitisation;

         (E)      in the case of the Security Trustee:

                  (i)      to State Street Bank and Trust Company, 225 Franklin
                           Street, Boston, Massachusetts 02110, (facsimile
                           number + 1 (617) 662 2919) for the attention of Mark
                           Nelson; and

                  (ii)     to U.S. National Bank Association, 1 Federal Street,
                           3rd Floor, Boston, Massachusetts 02110, (facsimile
                           number + 1 (617) 603 6638) for the attention of
                           Corporate Trust Services;

         (F)      or to such other address or facsimile number or for the
                  attention of such other person or entity as may from time to
                  time be notified by any party to the others by written notice
                  in accordance with the provisions of this CLAUSE 25. All
                  notices served under this Agreement shall be simultaneously
                  copied to the Security Trustee by the person serving the same.

26.      VARIATION AND WAIVER

         No variation or waiver of this Agreement shall be effective unless it
         is in writing and signed by (or by some person duly authorised by) each
         of the parties. No single or partial exercise of, or failure or delay
         in exercising, any right under this Agreement shall constitute a waiver
         or preclude any other or further exercise of that or any other right.
         No variation or waiver of this Agreement shall be made if the same
         would adversely affect the then current ratings of any of the Notes.

27.      NO PARTNERSHIP

         It is hereby acknowledged and agreed by the parties that nothing in
         this Agreement shall be construed as giving rise to any partnership
         between any of the parties.

28.      ASSIGNMENT

28.1     The Mortgages Trustee may not assign or transfer any of its rights or
         obligations under this Agreement without the prior written consent of
         each of the Beneficiaries.

28.2     The Servicer may not assign or transfer any of its rights and
         obligations under this Agreement without the prior written consent of
         the Mortgages Trustee (as trustee for the Beneficiaries) and each of
         the Beneficiaries.

28.3     The Servicer acknowledges that Funding 1 has assigned its rights under
         this Agreement to the Security Trustee pursuant to the Funding 1 Deed
         of Charge and acknowledges that pursuant to the terms of the Funding 1
         Deed of Charge, Funding 1 has, inter alios, authorised the Security
         Trustee, prior to the Funding 1 Security becoming enforceable, to
         exercise, or refrain from exercising, all rights, powers, authorities,
         discretions and remedies under or in respect of the

<PAGE>
                                       26

         Transaction Documents, including this Agreement, in such manner as in
         its absolute discretion it shall think fit.

29.      CHANGE OF SECURITY TRUSTEE

29.1     If there is any change in the identity of the Security Trustee in
         accordance with the Funding 1 Deed of Charge, the Servicer, the Seller,
         Funding 1 and the Mortgages Trustee shall execute such documents and
         take such action as the successor Security Trustee and the outgoing
         Security Trustee may reasonably require for the purpose of vesting in
         the successor Security Trustee the rights and obligations of the
         outgoing Security Trustee under this Agreement and releasing the
         outgoing Security Trustee from its future obligations under this
         Agreement.

29.2     It is hereby acknowledged and agreed that by its execution of this
         Agreement the Security Trustee shall not assume or have any of the
         obligations or liabilities of the Servicer, the Seller, Funding 1 or
         the Mortgages Trustee under this Agreement.

30.      AMENDMENTS

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

31.      EXCLUSION OF THIRD PARTY RIGHTS

         The parties to this Agreement do not intend that any term of this
         Agreement should be enforced, by virtue of the Contracts (Rights of
         Third Parties) Act 1999, by any person who is not a party to this
         Agreement.

32.      COUNTERPARTS AND SEVERABILITY

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

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

33.      GOVERNING LAW AND JURISDICTION

33.1     This Agreement is governed by, and shall be construed in accordance
         with, the laws of England.

33.2     Each party to this Agreement hereby irrevocably submits to the
         non-exclusive jurisdiction of the English courts in any action or
         proceeding arising out of or relating to this Agreement, and hereby
         irrevocably agrees that all claims in respect of such action or
         proceeding may be heard and determined by such courts. Each party to
         this Agreement hereby irrevocably waives, to the fullest extent it may
         possibly do so, any defence or claim that the English courts are an
         inconvenient forum for the maintenance or hearing of such action or
         proceeding.

<PAGE>
                                       27

34.      PROCESS AGENT

         The Mortgages Trustee irrevocably and unconditionally appoints
         Structured Finance Management Limited of Blackwell House, Guildhall
         Yard, London EC2V 5AE for the time being as its agent for service of
         process in England in respect of any proceedings in respect of this
         Agreement and undertakes that in the event of Structured Finance
         Management Limited ceasing so to act it will appoint another person
         with a registered office in London as its agent for service of process.

IN WITNESS WHEREOF the parties have caused this Agreement to be executed as a
deed the day and year first before written.

<PAGE>
                                       28

                                   SCHEDULE 1

                                  THE SERVICES

In addition to the Services set out in the body of the Servicing Agreement, the
Servicer shall:

(a)      keep records and books of account for the Mortgages Trustee in relation
         to the Loans and Related Security comprised in the Portfolio;

(b)      keep records for all taxation purposes and Value Added Tax;

(c)      notify relevant Borrowers of any change in their Monthly Payments;

(d)      assist the auditors of the Mortgages Trustee and provide information to
         them upon reasonable request;

(e)      provide a redemption statement upon the request of a Borrower or the
         Borrower's solicitor or licensed conveyancer;

(f)      notify relevant Borrowers of any other matter or thing which the
         applicable Mortgage Conditions or Offer Conditions require them to be
         notified of in the manner and at the time required by the relevant
         Mortgage Terms;

(g)      subject to the provisions of this Agreement (including without
         limitation Clause 5.2) take all reasonable steps to recover all sums
         due to the Mortgages Trustee including without limitation by the
         institution of proceedings and/or the enforcement of any Loan comprised
         in the Portfolio or any Related Security;

(h)      take all other action and do all other things which it would be
         reasonable to expect a Reasonable, Prudent Mortgage Lender to do in
         administering its loans and their related security; and

(i)      act as collection agent for the Mortgages Trustee under the Direct
         Debiting Scheme in accordance with the provisions of this Agreement.

<PAGE>
                                       29

                                   SCHEDULE 2

                           FORM OF QUARTERLY POOL CUT

<TABLE>
<CAPTION>
FIELD                                                      DESCRIPTION
-----                                                      -----------
<S>                                                       <C>
Year/Month                                                 Processing year and month in YYYYMM format

Account Number                                             Unique Mortgage Account Identifier

Original Advance

Current Loan balance                                       Includes Capital, Interest, Arrears and Unpaid Charges

Latest Property Valuation                                  Most recent valuation.  It will be equal to original
                                                           valuation if no further valuation was done

Completion Date                                            The date the advance was completed

Outstanding Monthly Periods                                The number of monthly periods remaining on the Loan

Method of Repayment                                        Code to signify types of Loans: e.g. Endowment,
                                                           Interest Only, Repayment, Pension, Investment Linked
                                                           based on worst case reporting

First Income                                               First applicant's primary income

Second Income                                              Second applicant's primary income

Post Code                                                  Property postcode

MIG Cover Amount                                           Amount of MIG Policy cover

Current Arrears Balance                                    Includes unpaid interest, unpaid capital, unpaid
                                                           charges

Arrears Multiplier (Current)                               Arrears at previous month end divided by current month
                                                           payment due

Arrears Multiplier (1 to 2 months)                         Arrears at previous month end divided by current month
                                                           payment due

Arrears Multiplier (2 to 3 months)                         Arrears at previous month end divided by payment due
                                                           for that month

Arrears Multiplier (3 to 6 months)                         As above, but for 3 months prior to current month

Arrears Multiplier (6 to 12 months)                        As above, but for 6 months prior to current month

Arrears Multiplier (1 to 2 years)                          As above, but for 1 year prior to current month

Arrears Multiplier (2 years plus)                          As above, but for 2 years prior to current month

Property type                                              Terraced, semi-detached, detached, other (flats,
                                                           maisonettes, etc.) or unknown

Loan Use                                                   House purchase or remortgage

Property Use                                               Owner occupied, rental, etc

Product code(s)                                            Code identifier for the product(s)

MAR                                                        Monthly payment amount

Arrangement term                                           Where an arrangement exists for the primary account
                                                           the period of the arrangement from the start of the
                                                           arrangement

Arrangement amount                                         Amount of the arrangement made

Arrangement type                                           Code for the arrangement type
</TABLE>

<PAGE>
                                       30

                                    EXECUTION

SERVICER

EXECUTED as a DEED by                               )
HALIFAX PLC                                         )
acting by its attorney                              )
in the presence of:                                 )

Witness's signature:

Name:

Address:

MORTGAGES TRUSTEE

EXECUTED as a DEED by                               )
PERMANENT MORTGAGES                                 )
TRUSTEE LIMITED acting by two                       )
directors/a director and the secretary              )

Director

Director/Secretary

SELLER

EXECUTED as a DEED by                               )
HALIFAX PLC                                         )
acting by its attorney                              )
in the presence of                                  )

Witness'd signature:

Name:

Address:

<PAGE>
                                       31

FUNDING 1

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

Director

Director/Secretary

SECURITY TRUSTEE

EXECUTED as a DEED by an authorised                 )
signatory for and on behalf of                      )
STATE STREET BANK AND                               )
TRUST COMPANY                                       )

Authorised signatory

EXECUTED as a DEED by an authorised                 )
signatory for and on behalf of                      )
U.S. NATIONAL BANK                                  )
ASSOCIATION                                         )
                                                    )

Authorised signatory

<PAGE>

                             DATED [6TH MARCH], 2003

                                   HALIFAX PLC
                                   as Servicer

                                       and

                       PERMANENT MORTGAGES TRUSTEE LIMITED
                              as Mortgages Trustee

                                       and

                                   HALIFAX PLC
                                    as Seller

                                       and

                        PERMANENT FUNDING (NO. 1) LIMITED
                                  as Funding 1

                                       and

                       STATE STREET BANK AND TRUST COMPANY
                                       and

                         U.S. NATIONAL BANK ASSOCIATION

                               as Security Trustee

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

                    AMENDED AND RESTATED SERVICING AGREEMENT

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

<PAGE>

                                    CONTENTS

<TABLE>
<CAPTION>
CLAUSE                                                                                                    PAGE
<S>     <C>                                                                                                <C>
1.       Definitions and Interpretation......................................................................2
2.       Appointment of Servicer.............................................................................2
3.       The Administration Services.........................................................................3
4.       Mortgages Trustee Variable Base Rate/MortgageS Trustee Tracker Rate.................................5
5.       Administration of Mortgages.........................................................................7
6.       No Liability.......................................................................................11
7.       New Loans..........................................................................................11
8.       Product Switching and Further Advances.............................................................11
9.       Redemption of Mortgages............................................................................11
10.      Powers of Attorney.................................................................................12
11.      Costs and Expenses.................................................................................12
12.      Information........................................................................................13
13.      Remuneration.......................................................................................14
14.      Insurances.........................................................................................15
15.      Halifax Insurance Policies.........................................................................15
16.      Buildings Policies.................................................................................16
17.      Title Deeds........................................................................................16
18.      Data Protection....................................................................................17
19.      Covenants of Servicer..............................................................................18
20.      Services Non-exclusive.............................................................................19
21.      Termination........................................................................................19
22.      Further Assurance..................................................................................22
23.      Miscellaneous......................................................................................22
24.      Confidentiality....................................................................................23
25.      Notices............................................................................................24
26.      Variation and Waiver...............................................................................25
27.      No Partnership.....................................................................................25
28.      Assignment.........................................................................................25
29.      Change of Security Trustee.........................................................................26
30.      Amendments.........................................................................................26
31.      Exclusion of Third Party Rights....................................................................26
32.      Counterparts and Severability......................................................................26
33.      Governing Law and Jurisdiction.....................................................................26
34.      Process Agent......................................................................................27

SCHEDULE

1. The Services.............................................................................................28
2. Form of Quarterly Pool Cut...............................................................................29
EXECUTION...................................................................................................30
</TABLE><PAGE>
                                                                    Exhibit 4.11

DRAFT: 25/02/03

THIS AGREEMENT is made on [6th March], 2003

BETWEEN

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

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

(3)  U.S. BANK NATIONAL ASSOCIATION, a Massachusetts trust company organised
     under the laws of the Commonwealth of Massachusetts, United States of
     America, acting through its office at 225 Franklin Street, Boston,
     Massachusetts 02110(in its capacity as the Security Trustee); and

(4)  U.S. BANK NATIONAL ASSOCIATION, a Massachusetts trust company organised
     under the laws of the Commonwealth of Massachusetts, United States of
     America, acting through its office at 225 Franklin Street, Boston,
     Massachusetts 02110 (in its capacity as the Note Trustee).

IT IS HEREBY AGREED AS FOLLOWS:

1.   INTERPRETATION

     The Amended and Restated Master Definitions and Construction Schedule and
     the Second Issuer Master Definitions and Construction Schedule, both signed
     for the purposes of identification by Allen & Overy and Sidley Austin Brown
     & Wood on [5th March], 2003 (as the same may be amended, varied or
     supplemented from time to time with the consent of the parties hereto) are
     expressly and specifically incorporated into this Agreement and,
     accordingly, the expressions defined in the Amended and Restated Master
     Definitions and Construction Schedule and the Second Issuer Master
     Definitions and Construction Schedule (as so amended, varied or
     supplemented) shall, except where the context otherwise requires and save
     where otherwise defined herein, have the same meanings in this Agreement,
     including the Recitals hereto and this Agreement shall be construed in
     accordance with the interpretation provisions set out in CLAUSE 2 of the
     Amended and Restated Master Definitions and Construction Schedule and the
     Second Issuer Master Definitions and Construction Schedule. In the event of
     a conflict between the Amended and Restated Master Definitions and
     Construction Schedule and the Second Issuer Master Definitions and
     Construction Schedule, the Second Issuer Master Definitions and
     Construction Schedule shall prevail.

2.   OPTION

2.1  In the event that the Second Issuer Security is enforced and, after payment
     of all other claims ranking in priority to the Class B Second Issuer Notes
     or the Class C Second Issuer Notes (as the case may be) under the Second
     Issuer Deed of Charge, the remaining proceeds of such enforcement are
     insufficient to pay in full all principal and interest and other amounts
     whatsoever due in respect of the Class B Second Issuer Notes or the Class C
     Second Issuer Notes (as the case may be) and all other claims ranking pari
     passu therewith, then the Class B Second Issuer Noteholders or the Class C
     Second Issuer Noteholders (as the case may be) shall, upon the Second
     Issuer Security having been enforced and realised to the maximum

<PAGE>
                                       2

     possible extent as certified by the Security Trustee, be forthwith entitled
     to their respective shares of such remaining proceeds (as determined in
     accordance with the provisions of the Second Issuer Deed of Charge) and the
     date upon which payment to each Class B Second Issuer Noteholder or Class C
     Second Issuer Noteholder (as the case may be) is made shall be called the
     "OPTION EXERCISE DATE".

2.2  The Note Trustee hereby grants, and the Second Issuer hereby acknowledges,
     an option (the "OPTION"), under which the Note Trustee has no personal
     liability, exercisable by the Post-Enforcement Call Option Holder (or by
     any designated subsidiary of the Post-Enforcement Call Option Holder, to be
     designated by notice from the Post-Enforcement Call Option Holder to the
     Note Trustee and the Security Trustee at the discretion of the
     Post-Enforcement Call Option Holder (the "DESIGNATED SUBSIDIARY"))
     permitting the Post-Enforcement Call Option Holder (or any Designated
     Subsidiary) to acquire at any time on or after the Option Exercise Date all
     (but not some only) of the Relevant Second Issuer Notes (as defined below)
     outstanding as at the Option Exercise Date, together with accrued interest
     thereon ("RELEVANT SECOND ISSUER NOTES" being for the purposes of this
     Agreement, all the Class B Second Issuer Notes and all the Class C Second
     Issuer Notes).

2.3  The Option shall be exercised by the Post-Enforcement Call Option Holder
     (or the Designated Subsidiary) by notice from the Post-Enforcement Call
     Option Holder (or the Designated Subsidiary) to the Note Trustee, the
     Security Trustee and the Second Issuer Noteholders in accordance with
     CONDITION 14.

3.   CONSIDERATION

     The Post-Enforcement Call Option Holder (or the Designated Subsidiary)
     shall pay to the Second Issuer Noteholders in respect of the exercise of
     the Option, the sum of one pence sterling, one euro cent or one dollar cent
     (as appropriate) in respect of each Class B Second Issuer Note and each
     Class C Second Issuer Note then outstanding.

4.   ACKNOWLEDGEMENT

     Each of the Security Trustee and Note Trustee acknowledges that the Class B
     Second Issuer Notes and the Class C Second Issuer Notes are to be issued
     subject to the Option and the Note Trustee hereby grants the Option but
     does so entirely without warranty, responsibility or liability as to its
     effectiveness or otherwise on the part of the Note Trustee to the Second
     Issuer Noteholders or any other person. In accordance with the Conditions,
     each of the relevant Second Issuer Noteholders, by subscribing for or
     purchasing the Class B Second Issuer Notes or the Class C Second Issuer
     Notes (as the case may be), shall, upon subscription or purchase, be deemed
     to have agreed to be bound by and, to the extent necessary, to have
     ratified the granting of the Option.

5.   NOTICES

     Save as otherwise provided herein, any notices to be given pursuant to this
     Agreement to any of the parties hereto shall be sufficiently served if sent
     by prepaid first class post, by hand or facsimile transmission and shall be
     deemed to be given (in the case of facsimile transmission) when despatched,
     (where delivered by hand) on the day of delivery if delivered before 17.00
     hours on a London Business Day or on the next London Business Day if
     delivered thereafter or on a day which is not a London Business Day or (in
     the case of first class post) when it would be received in the ordinary
     course of the post and shall be sent:

<PAGE>
                                       3

     (a)  in the case of the Second Issuer to: Permanent Financing (No. 2) PLC,
          Blackwell House, Guildhall Yard, London EC2V 5AE (facsimile number
          (020) 7556 0975) for the attention of the Secretary with a copy to
          HBOS Treasury Services plc, 33 Old Broad Street, London EC2N 1HZ
          (facsimile number +44 (020) 7574 8784) for the attention of Head of
          Capital Markets and Securitisation;

     (b)  in the case of the Post-Enforcement Call Option Holder to: Permanent
          PECOH Limited, Blackwell House, Guildhall Yard, London EC2V 5AE
          (facsimile number (020) 7556 0975) for the attention of the Secretary
          with a copy to HBOS Treasury Services plc, 33 Old Broad Street, London
          EC2N 1HZ (facsimile number +44 (020) 7574 8784) for the attention of
          Head of Capital Markets and Securitisation;

     (c)  in the case of the Security Trustee to: U.S. Bank National
          Association, 1 Federal Street, 3rd Floor, Boston, Massachusetts 02110,
          (facsimile number + 1 (617) 603 6638) for the attention of Corporate
          Trust Services ; and

     (d)  in the case of the Note Trustee to: U.S. Bank National Association, 1
          Federal Street, 3rd Floor, Boston, Massachusetts 02110, (facsimile
          number + 1 (617) 603 6638) for the attention of Corporate Trust
          Services,

     or to such other address or facsimile number or for the attention of such
     other person or entity as may from time to time be notified by any party to
     the others by written notice in accordance with the provisions of this
     CLAUSE 5.

6.   EXCLUSION OF THIRD PARTY RIGHTS

     A person who is not a party to this Agreement has no right under the
     Contracts (Rights of Third Parties) Act 1999 to enforce any term of this
     Agreement, but this does not affect any right or remedy of a third party
     which exists or is available apart from that Act.

7.   COUNTERPARTS

     This Agreement may be executed in any number of counterparts, and by the
     parties on separate counterparts, but shall not be effective until each
     party has executed at least one counterpart. Each counterpart shall
     constitute an original of this Agreement, but all the counterparts shall
     together constitute but one and the same instrument.

8.   GOVERNING LAW

     This Agreement shall be governed by, and construed in accordance with,
     English law.

9.   SUBMISSION TO JURISDICTION

     Each party to this Agreement hereby irrevocably submits to the
     non-exclusive jurisdiction of the English courts in any action or
     proceeding arising out of or relating to this Agreement, and hereby
     irrevocably agrees that all claims in respect of such action or proceeding
     may be heard and determined by such courts. Each party to this Agreement
     hereby irrevocably waives, to the fullest extent it may possibly do so, any
     defence or claim that the English courts are an inconvenient forum for the
     maintenance or hearing of such action or proceeding.

IN WITNESS whereof the parties hereto have executed this Agreement on the day
and year first before written.

<PAGE>
                                       4

                                   SIGNATORIES

SECOND ISSUER

SIGNED by                                               )
for and on behalf of                                    )
PERMANENT FINANCING (NO. 2) PLC                         )

POST-ENFORCEMENT CALL OPTION HOLDER

SIGNED by                                               )
for and on behalf of                                    )
PERMANENT PECOH LIMITED                                 )

SECURITY TRUSTEE

SIGNED by                                               )
for and on behalf of                                    )
U.S. BANK NATIONAL ASSOCIATION                          )

NOTE TRUSTEE

SIGNED by                                               )
for and on behalf of                                    )
U.S. BANK NATIONAL ASSOCIATION                          )

<PAGE>

                             DATED [6TH MARCH], 2003

                         PERMANENT FINANCING (NO. 2) PLC
                                as Second Issuer

                                       and

                             PERMANENT PECOH LIMITED
                     as Post-Enforcement Call Option Holder

                                       and

                         U.S. BANK NATIONAL ASSOCIATION
                      as Security Trustee and Note Trustee

              ____________________________________________________

              SECOND ISSUER POST-ENFORCEMENT CALL OPTION AGREEMENT
              ____________________________________________________

                                  ALLEN & OVERY
                                     London
                                  ICM:638890.4

<PAGE>

                                    CONTENTS

CLAUSE                                                                      PAGE
------                                                                      ----
1.   Interpretation.......................................................... 1
2.   Option.................................................................. 1
3.   Consideration........................................................... 2
4.   Acknowledgement......................................................... 2
5.   Notices................................................................. 2
6.   Exclusion of Third Party Rights......................................... 3
7.   Counterparts............................................................ 3
8.   Governing Law........................................................... 3
9.   Submission to Jurisdiction.............................................. 3

SIGNATORIES.................................................................. 4

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