The Reserve Bank of New Zealand has declared its controversial speed limit on low deposit mortgages a success after six months, saying it had worked broadly as expected to moderate the risks to the banking system from an increasingly over-valued housing market.The central bank, which also acts as New Zealand's banking regulator, yesterday released its most detailed assessment yet of its limit on high loan to value ratio (LVR) mortgages in its half yearly Financial Stability Report."The restriction of high-LVR mortgages appears to be having the desired effect of moderating house price pressures and reducing the risk of a severe market correction," Deputy Governor Grant Spencer said in the report.The 'macro-prudential' tool was introduced on October 1 last year. It specified that mortgages with an LVR of more than 80 per cent could not make up more than 10 per cent of a bank's new mortgage flow over the first six months.The Reserve Bank said banks had complied well with both the spirit and letter of the rules. After six months the high LVR share of bank mortgage lending averaged 5.6 per cent per month.The bank said the limit had a "particularly strong impact" on housing market activity. Sales volumes fell 11 per cent over the six months, which was greater than the three to eight per cent per cent initially modelled by the bank. The fall in volumes was concentrated in lower value house sales and the share of mortgage lending to first home buyers fell the most.Annual house price inflation moderated to 8.4 per cent and would have been around 11 per cent without the high LVR limit, the bank estimated. The bank repeated comments made last week that the limit would be a temporary measure, but was unlikely to be eased before the end of this year. It said it wanted to see a better balance between housing supply and demand before it eased the restriction. Spencer said the limit could be lifted in a phased way, potentially by lifting the limit to 15 per cent.However, the bank added it was wary that a recent surge in migration would further fuel house price inflation and it wanted to see the results of its 50 basis points of monetary policy tightening in March and April before easing restrictions.It also added it wanted to see house prices rising more closely to the rate of growth in household incomes and that household credit should continue to grow in line with household incomes. Household debt to disposable income rose between late 2011 and mid 2013, but has been stable over the last three quarters.Elsewhere, the Reserve Bank gave its half yearly assurance that the financial system remained sound, but said there remained risks to the system from over-valued housing, indebted households and high debt in the dairy farming sector.It also spelled out its concerns about the potential for a financial downturn in China leading to a correction in China's economic growth rate, which would in turn affect export incomes and potentially