On a monthly basis, UK house prices rose by 0.3% in May compared to 1% in April, taking the average property price to £195,166.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
“The annual pace of house price growth slowed to 4.6% in May. This resumes the gradual downward trend that had been in evidence since the summer of 2014, which was briefly interrupted in April when price growth edged up to 5.2% from 5.1% in March. Annual house price growth is now running at less than half the pace prevailing in mid-2014.
“Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4% per annum. However, much will depend on supply side developments - in recent years the rate of building activity has remained well below that required to keep up with population growth."
Gardner also said that cash purchases in the housing market reached an all-time high of 38% in Q1 2015, due to the continuation of subdued mortgage lending. In Q1 2015, overall housing transactions were down by around 5% compared with Q1 2014, while mortgage completions were around 11% lower.
Charlie Wells, managing director of buying agency Prime Purchase, said that the biggest barrier to growth is stock levels, saying:
"There is not a lot of property on the market. Vendors who have been sitting on their hands because of election uncertainty are not yet making the decision to sell up.
"Vendors may be waiting until the summer is out of the way and planning on selling in the autumn when everyone is back from their holidays so it may be too early to tell whether this situation will change. But with interest rates so low, where else would you put your cash to earn the same returns? Property is about the best investment for your money right now and even with annual house-price growth dipping slightly, it’s still doing a lot better than the alternatives."
Rob Weaver, head of investments, property crowdfunding platform Property Partner, said:
"The ongoing slowdown in the annual pace of house price growth is good, not bad, news. A year or two ago prices were rising at an unsustainable rate and if that had continued, things would have unravelled just as quickly.
"The kind of growth we are seeing at present is positive without being disproportionate. For house prices to consistently converge with earnings growth, however, may be asking a lot given the systemic lack of supply.
"And although the percentage of cash purchases has reached an all-time high, that level may well fall given this week's strong mortgage approvals data.
"2015 is not going to be a 2014 in terms of house price growth but with low interest rates and living costs, and strong employment, it's certainly not going to underperform."
Alex Gosling, CEO, online estate agents HouseSimple.com, commented:
"Who would have believed that average house prices in the UK could ever hit £200k? But now there's a real possibility that ceiling might be breached this year unless we see significantly more housing stock coming onto the market.
"Although annual house price growth has slowed, average house prices have still shot up from just over £189,000 in March 2015 to more than £195,000 in May. This jump may well be due to the General Election effect and homeowners suffering from pre-election jitters.
"Now that the General Election bottleneck has cleared, homeowners should hopefully have more confidence in the housing market. And we're already seeing that, with a flurry of new properties coming onto the market.
"This trend will hopefully continue, because the market doesn't need runaway prices right now - it needs sensible growth and a healthy balance of buyers and sellers."
