Run-off rate — what AU mortgage book buyers actually look at

Of all the numbers in a broker book valuation, the one buyers stare at the longest is run-off rate. It's the rate at which loans walk off your book — discharged, refinanced away, sold out — and it's the single best predictor of how long the trail income they're buying will actually last.

This piece walks through how it's measured, what a normal range looks like, and what you can do if your number is higher than you'd like.

What run-off rate is, exactly

Run-off rate is the annualised percentage of your active loan count (or balance, or trail income — pick one and stick with it) that exits the book over a given period.

The simplest version:

run_off_rate = (loans_discharged_in_last_12_months / loans_active_12_months_ago) × 100

That gives you a percentage. If you started 12 months ago with 240 active loans and 22 have discharged since, your run-off rate is around 9.2% — squarely normal for an AU residential book.

There are two refinements worth making:

• Use rolling 12-month windows, not calendar years. A January reading and a July reading should both be defensible without waiting for year-end.
• Run-off by income, not by count. A book where the discharges are all small loans looks fine by count but bleeds disproportionately on income. Measuring income-weighted run-off catches that.

Most buyer-side valuations now ask for both: count-based and income-based. The gap between them is also informative — a big gap means your discharges are weighted to one end of the book, which is its own signal.

Normal range for an AU residential book

The numbers I see consistently across working broker books:

• Under 8% annualised — a strong book. Buyers will pay a small premium for low run-off.
• 8–12% — typical. No premium, no discount, just baseline.
• 12–18% — elevated. Buyers will start discounting the multiple — typically -0.2× to -0.3×.
• Above 18% — high. Buyers will either discount aggressively (>0.5× off the multiple) or walk away. They're not buying trail; they're buying a fast-melting ice cube.

Investor-heavy books run a few percentage points higher than owner-occupier books. First-home-buyer books also run high — early-stage borrowers are more likely to refinance into a second property in the first five years. None of these are bad, but the baseline shifts.

Why run-off compounds against book value

If a buyer is paying you 2.0× annual trail today, they're implicitly betting on that trail being there for the next 4–6 years. Run-off rate tells them how aggressive that bet is.

A book at 8% run-off retains roughly 92% of its trail next year, 85% the year after, and so on. By year five, the book has decayed to ~66% of its current trail income.

A book at 15% run-off retains 85% next year, 72% the year after, and decays to ~44% by year five.

The difference is enormous. Same book size today, dramatically different cumulative trail over the hold period. That's why the multiple moves so meaningfully on run-off — a buyer isn't paying for what the book is today, they're paying for the integral of trail over time.

What drives run-off

Books don't run hot randomly. The drivers are usually one or more of:

• Recent settlements (high C-grade share). Loans in their first 3 years are statistically more likely to discharge. A book with 40% of its loans settled in the last 24 months will run hotter than a book with 20%, even with identical service quality.
• Lender concentration on policy-stressed lenders. When a major lender tightens serviceability or has a policy-driven retention problem, books concentrated there run faster.
• Cashback-driven origination. Cashback clients are demonstrably more responsive to cashback offers. If you wrote a lot of cashback business, your run-off will reflect it.
• Investor-heavy mix. Investors refinance more often. Period. Not a fault — just the math.
• Lack of post-settlement contact. Brokers who don't call clients between months 12 and 24 see materially higher refinance-away rates than brokers who do. It's the single most controllable variable.

If you measure your run-off and it's above 12%, work through the list. One of the items above is almost always the dominant cause.

How to lower run-off

The two interventions with the strongest evidence:

1. Quarterly check-in calls

Every active loan, every quarter, even if it's a two-minute "how are you going" call. The data on this is consistent across studies and broker reports — books with quarterly contact run materially lower run-off than books with annual or no contact. The cost is roughly 30 minutes per 10 loans, or two hours a month for a 250-loan book.

2. Pre-emptive rate review at month 22

By month 22, the discount honeymoon (if there was one) has long rolled off, the client is starting to compare, and you have a window to either negotiate a rate review with the existing lender or initiate an internal refi. Loans you save at month 22 don't get clawed back, and they reset the relationship.

Lower-impact but still useful:

• Annual book health email — generic, costs nothing, keeps you front-of-mind.
• Birthday and settlement-anniversary touches — modest, but cumulative.
• Newsletter content — if you can sustain it, a newsletter touching the book monthly halves your unprompted-refinance rate. If you can't sustain it, don't start.

Measuring it correctly

The thing brokers get wrong is using their aggregator's discharge field as the truth source without checking it. A loan that's been refinanced away three months ago might still say active on the file because the aggregator hasn't received the discharge notice. Conversely, loans that are paid out via internal refi sometimes get marked as discharged when they shouldn't be.

For a defensible run-off number you want:

• A clear definition of "discharged" — usually the loan exits the trail payment file, not just a status field.
• A consistent measurement window — rolling 12-month from today, refreshed monthly.
• Treatment of internal refis as not discharged (they're still your loans).
• Treatment of partial discharges (loan size reduction without payout) as not discharged.

If you can't produce that number cleanly today, see the valuation calculator for an automated version that runs the math against your loaded loan book, or the broader valuation methodology for how run-off folds into the multiple.

What "good" looks like for a buyer

A book a buyer would happily pay top of range for:

• Sub-10% run-off, income-weighted
• Stable 12-month rolling trend (not 6% one quarter, 14% the next)
• Clear definition of internal vs. external refi
• A defensible explanation for any spikes (lender campaign, broker leave, etc.)

A buyer doesn't expect 4% run-off. They expect 8–10% with a defensible story.

Key takeaways

• Run-off rate = loans (or income) that exit the book in 12 months, divided by what was there a year ago.
• Sub-8% is strong, 8–12% is normal, above 12% triggers material multiple discounts.
• Compounding matters: a 15% book has decayed to 44% of trail by year 5, vs. 66% for an 8% book. That's where the multiple discount comes from.
• The biggest controllable driver is post-settlement contact. Quarterly check-ins materially lower run-off.
• Measure income-weighted and count-based. The gap tells you something.