The balance sheets of Australian households with a mortgage are dangerously exposed to any fall in house prices.

It isn't just that household debt relative to disposable incomes has reached a record high of 189 per cent, it's that households' ability to service that debt is potentially a ticking time bomb.

If you look at the health of a household balance sheet in the same way as a company's balance sheet, there are two things that come into the picture: the first is the size of the debt against the assets it holds, and the second is the ability to pay interest based on its income.

The main reason the average Australian household balance sheet doesn't look like a crisis in the making is that the asset side of the ledger is healthy because house prices have appreciated enormously.

As property analysis from CoreLogic notes: "While the ratios of household and housing debt to disposable incomes is at record-high levels, so too are the ratios of household and housing assets to disposable incomes. The ratio of housing assets to disposable incomes sits at 910.6 per cent having increased by 23.2 basis points over the [December 2016] quarter and 42.2 basis points over the year."

So the asset side looks rosy enough. And the value of household assets relative to what we earn looks very solid.

But here's the trouble in referencing the asset side of the balance sheet: If the housing bubble bursts, the value of our assets can fall precipitously - but the size of the debt doesn't. One side is fixed and the other moves around.

This is why household income and interest rates have become so important. Regardless of the nominal value of one's asset – mostly a residential property –, if the ability to service it remains within the reach of the household's income the damage is limited.

(By the way the corporate regulator, the Australian Securities and Investments Commission, regularly scrutinises the real value of assets on company balance sheets. If they are overvalued, the regulator tells the business to write them down in their books to more realistic levels.)

Meanwhile from a household's perspective, being asset rich and cash bereft ultimately means assets need to be sold. If too many households sell their property, the prices fall and the cycle moves into a downward spin.

You could also be forgiven for wondering why household debt relative to disposable income at 189 per cent seems to be troubling the regulators in charge of the stability of the financial system, like the Australian Prudential Regulation Authority.

This ratio means that a household with a disposable income (ie after paying tax) of $100,000 has $189,000 in debt. On the face of it this doesn't seem particularly dire.

But out of this amount the household needs to pay the interest on any debt (be it mortgage or credit cards or personal loans), which eats significantly into its income.

The other point that needs to be made is this ratio is an average across all Australian households and only one third of these have a mortgage. The others have either paid off the mortgage (older people) or they rent.

This suggests the ratio of debt to disposable incomes is far higher among those with mortgages and higher still among those that borrowed recently with house prices monstrously elevated.

A recent Digital Finance Analytics survey found that of the 3.1 million mortgaged households, an estimated 669,000 are now experiencing mortgage stress.

"This is a 1.5 per cent rise from the previous month and maintains the trends we have observed in the past 12 months," it found. "The rise can be traced to continued static incomes, rising costs of living, and more underemployment; whilst mortgage interest rates have risen thanks to out-of-cycle adjustments by the banks and bigger mortgages thanks to rising home prices."

This explains why APRA and the Australian Securities and Investments Commission are taking a more vigilant approach to practices of banks – discouraging the continuation of rampant growth in lending to investors and the selling of interest-only loans.

(This despite the fact that the major banks are adamant that they lend responsibly and have ensured there are healthy buffers when interest rates increase).

And it's the reason APRA chairman Wayne Byres was talking this week about the prospect of forcing banks to hold more capital against mortgages to enhance the stability of the banking system.