Up to the challenge

Australian banks have thrown down the gauntlet in the mortgage space but Athena is taking up the challenge. The company’s Sydney-based cofounder and chief operating officer, Michael Starkey, tells KangaNews how its unique value proposition will allow it to succeed on the banks’ home turf of prime mortgage origination despite a revved-up competitive environment.

Athena’s customer acquisition is focused on refinancing rather than new lending. How is loan origination tracking during COVID-19 – noting that this seems to have been a particularly hot area for major banks?

Overall demand for refinancing has been resilient through the crisis, though Athena did suffer a hit to volume when funding markets were disrupted in April and May. Thankfully, we have since received strong support from new and existing funding partners, and origination volume has started to recover.

We are certainly finding the competitiveness in fixed-rate products offered by the major banks much more challenging than last year. This appears to be attributable directly to the large distortion introduced by the Reserve Bank of Australia’s term-funding facility (TFF). The TFF is now extending into next year and the market will remain very challenging until this subsidy is removed or extended to include nonbanks.

How is Athena responding to this enhanced competitive environment? Have the company’s growth forecasts been revised?

We are getting sharper. We have been watching closely the funding markets and judging where they are going to land. Athena has a unique offering in that we have made a front-book, back-book promise – we do not charge our existing customers more than we are charging our new customers.

It is a powerful strategic position to have with our customers, but it means we have to be a little more careful around tactical things like cashback offers. We are circumspect about deploying aggressive tactics through a volatile period.

On the other hand, we forecast subdued funding costs and conditions over the long term and we are starting to position ourselves for the new environment. We recently put some price changes into the market, which is an indication of our willingness to compete for volume a little bit harder.

In June, Athena disclosed deferred payments on just 0.15 per cent of its total mortgage book. Can you give an update on hardship numbers and a view on how book performance stacks up with peers?

The major banks have been relatively public in stating their numbers, which are that 7-10 per cent of their mortgages are in payment deferral. This means hundreds of thousands of Australians are currently not making mortgage repayments.

At Athena, we have 3,500 customers and only eight of them are on payment holidays – which is about 0.2 per cent of our book. Another set of 12 customers is paying interest only, bringing the total percentage of loans in hardship to about 0.6 per cent.

To what do you attribute this low level of hardship?

It is a combination of things. We focus on super-prime customers and we have very tight technology and operational processes to ensure our lending aligns with policy.

From a credit appetite point of view, we have had limited demand for the segments that have been hardest hit by COVID-19 – for instance self-employed borrowers. To date, we have mainly focused on PAYG customers.

Another segment we have steered clear of is customers who are heavily reliant on uncertain income. This includes commissions, bonuses and casual work. These are the first types of income to be affected in difficult economic times.

In July, Athena introduced the AcceleRATE loan: a mortgage where the rate falls as the borrower pays down the loan. What is the rationale behind the product?

We have brand positioning around helping customers pay back their home loan faster. We like to substantiate this positioning so it is more than just words. For example, when a customer refinances with us we encourage them to pick up where they left off and not to extend back out to a 25- or 30-year term if they only have 15 years to go on their mortgage.

As part of looking to get sharper, rather than introducing a flat pricing change we looked to do something innovative in line with the brand – which is an automatic reduction in rate as the loan-to-value ratio (LVR) declines. We think we are the first lender to offer a rate that reduces automatically over time. What is different from other lenders offering similar products is that we are committed to lowering the price automatically as the LVR changes. 

The product allows us to be more aggressive on our pricing, too. It helps support volume growth and our customer proposition.