If, as in the hypothetical example above, it is entirely due to a fall in the level of interest rates and a commensurate fall in the variability of interest rates, then risk has not increased. This is important because most of the rise in the debt to income ratio in Australia is of this type.
But this does not mean that we can dismiss all concerns about the rise in household debt. This is because some of the rise in the debt to income ratio was due to factors other than the fall in interest rates, and these factors may well have resulted in households taking on more risk, and in many cases a lot more than they recognise.