How To Value A Mortgage Broker Business In Australia (in 2025)

Ever wondered what your mortgage broker business is really worth?

You’re not alone. Valuing your business starts with the trail book—a key component of its worth, representing ongoing trail commissions that provide a steady income stream.

Factors that influence the valuation of a trail book include the quality and stability of the loan portfolio, the diversity of lenders, and the historical performance of borrowers.

Based on these factors (and more), we’ll examine how to value a mortgage broker business in Australia. Let’s dive in.

💸

Unlock the full potential of your trail book with detailed performance insights.

Track My Trail makes it easy to keep track of lost & gained trail, discover clients who have paid off big chunks of their loans, and identify your most profitable clients.

Get Track My Trail for free today—no credit card required.

Trail Book Valuation

Valuing a mortgage broker business primarily revolves around the trail book, which represents ongoing trail commissions. These trail commissions are essential assets in the financial sector, providing brokers with a steady income over the life of the loans they have facilitated.

This ongoing revenue stream is crucial for buyers, offering a predictable income after purchasing the trail book.

While upfront commissions are always welcome, as they represent one-time payments, the true value lies in the recurring income from trail commissions. Valuing a trail book is not a cut-and-paste formula, since not all trail income is of equal value. Several methods and factors must be considered to accurately assess its worth.

If you want to get a quick valuation of your trailbook, you can plug your numbers into a trail commission calculator. If you’re looking for a more in-depth analysis that considers not just trail commissions but also runoff, lender and client diversification, and more, then look to mortgage broker software solutions, such as Track My Trail.

Primary Methods for Valuing Trail Books

Multiple of Trail Income

The most common method for valuing trail books is the multiple of trail income. This approach involves multiplying the annual trail income by a sector-specific factor. For example, if a trail book generates $100,000 annually and the sector-specific multiple is 2.5, the trail book would be valued at $250,000.

Factors influencing the multiple include the quality of the book and the stability of returns. A high-quality book with stable returns will command a higher multiple, while a book with fluctuating income may have a lower multiple.

Discounted Cash Flow (DCF)

The DCF method estimates future expected cash flows and discounts them to present value. This approach requires choosing the right discount rate, which reflects the risk associated with future cash flows.

Estimating future cash flows can be challenging, as it involves predicting loan repayments, interest rates, and other variables. Despite these challenges, the DCF method provides a comprehensive valuation by considering the time value of money.

Comparative Market Analysis

This method estimates value using recent sales data of similar trail books. Matching characteristics such as client makeup and book size ensure accurate comparisons.

One limitation is the potential lack of comparable sales data, which can make it difficult to determine the true value of a trail book.

Factors Considered in Trail Book Valuation

Valuing a trail book involves assessing several critical factors:

  • Age of Loans (Seasoning): The duration for which loans have been active impacts their value.
  • Arrears Rate: The percentage of loans in arrears can affect the overall valuation.
  • Clawback Rate: The rate at which commissions are clawed back due to early loan payoffs or refinancing.
  • Mix of Funders: The diversity of lenders in the portfolio.
  • Runoff Rate: The rate at which loans are paid off or refinanced.
  • Portfolio Trends and Concentration: Trends within the portfolio and the concentration of loan types or funders.

Other Factors to Consider

The value of a mortgage broking business often hinges more on intangible assets than physical ones.

The health of ongoing trail income is paramount, making it the business’s largest asset. Intangible assets include the client database, brand processes, and other non-physical assets contributing to business success.

Key Intangible Factors

  • Client Database: The value of relationships with clients.
  • Brand Processes: Proprietary processes that drive business success.
  • Intangible Assets: Other non-physical assets contributing to business value.

Market Dynamics and Pricing Trends

Understanding market dynamics and pricing trends is crucial for trail book valuation. Historical price trends, economic fluctuations, regulatory changes, and industry trends can all impact the value of these assets. Different sectors, such as mortgage, financial planning, and real estate, exhibit varied multiples. For instance, mortgage trail books may have higher multiples due to the long-term nature of the loans.

Strategic Considerations for Buying and Selling Trail Books

For Sellers:

  • Enhance the value of trail books by maintaining good records and demonstrating consistent income.
  • Negotiate with buyers and time the market to maximise the sale price.

For Buyers:

  • Conduct thorough due diligence, including reviewing past performance and assessing the quality of the client base.
  • Focus on true drivers of trail book value to avoid overpayment.

The Role of Technology in Trail Book Valuation

Advanced analytics and AI are increasingly used to provide more accurate valuations by analysing large datasets and identifying trends. Technology helps streamline the due diligence process for buyers and ensures that trail books are valued correctly.

The Impact of Regulatory Changes on Trail Book Valuation

Regulatory changes can significantly impact trail book valuation by affecting the stability of returns, the quality of the book, and the potential for future growth. Staying informed about regulatory changes is essential for making informed decisions.

Evaluating the Worth of Your Mortgage Business

The historical performance of trial commissions plays a crucial role in determining the value of the business. Past data provides insights into future performance, helping predict trail commissions’ value.

Historical Performance Considerations

  • Borrower Performance: Stability and reliability of borrowers.
  • Diversity of Lenders: A well-diversified lender base can enhance value.
  • Loan Type and Credit Limits: Types of loans and their respective credit limits.
  • Clawback History: Historical clawback rates and their impact on revenue.
  • Drop-Off Rates: Rates at which clients leave or refinance elsewhere.

Determining the Multiplier for Trail Book Sale

The multiplier used for valuing a trail book is crucial. Typically, the multiplier ranges from 1.2 to 2 times the annual trail commissions, influenced by the business setup and future plans.

Example Calculation

  • Trail Commission: Monthly earnings of $10,000 don’t directly translate to an annual projection of $120,000 due to various influencing factors.
  • Multiplier: A realistic range might be 1.2 to 2 times the projected annual trail commission.

Strategic Considerations for Selling

It’s important not to wait until the business declines before considering selling. Selling while the business is thriving ensures maximum value. Early planning and strategic conversations about selling can help in making timely decisions.

Enhancing Business Value

Strategies

  • Maintain Performance: Ensure high business performance until the point of sale.
  • Plan Exit Strategies: Advance planning of exit strategies.
  • Strengthen Relationships: Build strong client relationships and a robust business presence.
  • Utilise CRM Systems: Effective Customer Relationship Management can significantly boost business value.
  • Document Intangible Assets: Goodwill and client databases should be thoroughly documented.

Case Studies

Tom’s Mortgage Solutions

Tom’s Mortgage Solutions wanted to purchase Green Leaf Brokers’ mortgage trail book. On paper, Green Leaf Brokers’ portfolio was turning over $12,000 on average a month, equating to $144,000 annually. They were looking to sell their book for $288,000, applying an average multiplier of 2X. However, after a thorough valuation, the true value was found to be $216,000.

What Contributed to This Lower Than Expected Valuation?

  • High Run-Off Rate: The portfolio had a significantly higher run-off rate compared to the industry average.
  • Recent Deals: The portfolio was skewed towards deals under two years of age, indicating higher clawback risks.
  • Growth vs. Loss: Although the portfolio was growing by 12% annually, it was also losing an additional 20% due to run-offs.

Outcome

This detailed analysis provided Tom’s Mortgage Solutions with a powerful negotiation tool, highlighting potential risks and helping to justify a lower purchase price.

Linda’s Financial Services

Linda from Linda’s Financial Services was exploring funding options using her existing trail book as security to expand her office, hire new staff, and make a small acquisition. She had built her business steadily over six years with a monthly trail of $22,000. Upon valuation, her multiple came out at 2.3X.

What Drove This Higher Valuation?

  • A-Grade Clients: Most of her clients were classified as A-grade, which attracted a higher multiple.
  • Low Clawback Rate: Her clawback rate was below the industry average.
  • Minimal Run-Off Rate: The run-off rate in her portfolio was minimal.
  • Steady Growth: Her portfolio growth was consistent, and she avoided refinancing too many loans within the portfolio.

Outcome

Linda was able to secure more funding to support her business expansion. She also used the valuation to compare the quality of the book she was planning to acquire with her own. The schedules from the valuation were incorporated into the Purchase Deed, clearly defining which trail she was acquiring.

Conclusion

Valuing a mortgage broker business in Australia involves a thorough understanding of the trail book and the various factors influencing its value.

By considering both tangible and intangible assets and using a comprehensive, loan-by-loan valuation approach, brokers can accurately assess their business worth and make informed decisions about the future. Effective planning, strategic selling, and continuous education are key to maximising the value of a mortgage broking business.

Track My Trail Team

The Track My Trail Team develops software to simplify trail book management for mortgage brokers. Their tools provide fast and practical insights to help brokers get the most out of their trail books.