The Reserve Bank of New Zealand has reported its new restrictions on low deposit mortgages are showing early signs of changing behaviour in an over-valued housing market.But the banking regulator said it was too early to say the macro-prudential tool was working to reduce what it said was a risk of significant financial system stress if house prices fell sharply.The RBNZ imposed a limit on the growth of mortgages with loan-to-valuation ratios of over 80 per cent on October 1, forcing some banks to cancel pre-approvals and also slowing activity in the housing market in recent weeks. The RBNZ aims to slow high LVR lending to 10 per cent of new mortgage flows, before exemptions, from the 30 per cent it has been through much of the last year. The RBNZ said in its half-yearly Financial Stability Report that it was seeing early signs that the limit was changing bank lending and real estate market behaviour."The early evidence shows that banks have significantly reduced high LVR lending approvals, while increasing the cost of high LVR loans," RBNZ governor Graeme Wheeler said in releasing the FSR."However, it is too early to assess the impact of the measures on house price inflation," Wheeler said.The RBNZ said there was little evidence to suggest a material amount of housing activity had been brought forward before the policy took effect on October 1.It also pointed to the BNZ-REINZ residential market survey from early October, which showed declining housing market activity, with fewer people visiting open homes and lower auction clearance rates. The RBNZ said there would be a degree of market volatility over the next few months. It reiterated that it would take three to six months of evidence for a clearer picture to emerge.It reiterated, throughout its report, that New Zealand's housing market was over-valued and so vulnerable to a correction, even more than it was after the 2002-08 boom."If unchecked, further near-term growth in house prices increases the likelihood of a disruptive adjustment in the housing market," the Reserve Bank said.It reiterated that the high LVR speed limit was a temporary measure that depended on the Reserve Bank's assessment of its effectiveness in dampening housing-related credit growth and house price inflation. "These restrictions will be removed once there is evidence that significant imbalances in the housing market have abated, and the Reserve Bank is satisfied that their removal will not ignite housing-related credit growth and house price inflation," it said.It did not detail the thresholds at which it would consider the imbalances had abated.Later, however, Wheeler told a parliamentary select committee the Reserve Bank wanted to see annual house price inflation, which is running at around 10 per cent nationally and 16 per cent in Auckland, move down closer to the bank's target for consumer price inflation, which is around two per cent."You wouldn't want to see house prices for the country as a whole growing at around 10 per cent as they are at present. You would want to see a figure