The annual pace of house price growth also continued to slow, moderating to 3.3% from 4.6% in May. This maintains the gradual downward trend that has been in evidence since mid-2014, though this is the smallest annual rate of increase for two years.
In Q2, annual house price growth slowed in 11 out of 13 regions.
Across the UK as a whole, prices rose by 1.0% over the quarter, after allowing for seasonal effects. Prices were up 4.1% compared with Q2 2014.
London annual price growth softened from 12.7% to 7.3%, but Scotland was the weakest performing region, with prices down 1% compared with Q2 2014.
Northern Ireland overtook London to become the strongest performing region, with average prices up 8.0% year-on-year. Prices remain around 45% below their 2007 peak however.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
"House price growth continues to outpace earnings, but the gap is closing, helped by a pickup in annual wage growth, which moved up to 2.7% in the three months to April from 1.9% at the start of the year.
“The slowdown in house price growth is not confined to, nor does it appear to be driven primarily by, developments in London. In quarter on quarter terms, London has continued to see price growth at or above the rate in the UK overall over the past three quarters, while the annual rate of price growth in the capital remains the second highest in the country.
“Eleven of the thirteen UK regions saw a slowdown in the annual rate of growth in Q2. Most parts of the country continued to see annual house price gains - the exceptions were Wales and Scotland, which recorded small declines."
Robert Gardner added that housing stock is likely to be used more intensively unless supply picks up.
He continued:
“Given the gap between population growth and rates of housebuilding (which has been evident for some time) the housing stock is likely to be used increasingly intensively until building activity catches up. There are signs that this has been occurring, with the number of vacant properties trending down since 2008, though council tax changes in 2013 impacted reporting and probably overstate the decline in the last two years.
“The strong relationship between supply constraints and vacancy rates is clearly visible at the regional level. As you might expect, regions where affordability is more stretched see far fewer vacancies. For example, in London, the UK region where affordability is most stretched, only 1.7% of the housing stock was vacant in 2014, around half the 3.5% rate prevailing in the North of England.
“Given the apparent supply pressures, it is interesting that instances of under-occupancy are relatively high. For example, in 2014 almost half of owner occupiers in England lived in a property with two or more spare bedrooms.
“While this may represent peoples’ preferences, it may indicate that the housing stock is not be being used as efficiently as it might be, perhaps because of a mismatch between the types of property people want and what is available. For example, it may be that older people are unable to find suitable properties to downsize, frustrating the ability of families to move into larger homes.”
Alex Gosling, CEO, online estate agents HouseSimple.com, commented:
"Yesterday was the hottest day of the year - house prices are somewhat cooler. Only the second monthly fall in house prices this year suggests any momentum gathered following the General Election in April, has started to ease.
"However, there's no immediate cause for concern that the housing market is starting to stutter. Typically, the summer months are often slower months for property purchases as buyers head to the beaches rather than view properties. And April and May did see an unusually high level of buyer activity.
"What we're seeing overall is a return to normality, although a black cloud does loom overhead in the form of a shortage of stock. The lack of properties coming onto the market remains an issue, and come September when buying activity typically starts to pick up again, the picture could be an entirely different one."
"Although most regions have seen annual price growth fall, the most noticeable drop is London with annual price growth down to 7.3%. London's buoyant housing market propped up the UK market as a whole during the hard times - now it seems the Capital could do with a little propping up itself."
Jonathan Samuels, CEO of Dragonfly Property Finance, added:
"The property market is a veritable conundrum right now. The June dip and ongoing slowdown in the rate of annual growth have come despite the fact that demand is picking up and supply is still constrained.
"While the gap between earnings and house price growth may be narrowing, you suspect there will always be a degree of repulsion between the two, like two positive magnets. Wages may be improving but it's hard to see them ever getting consistently close to house prices.
"London prices may have softened quite considerably but they are still comfortably above the UK regional average. Even when London falls, the landing is relatively soft. The fact that Northern Ireland outperformed all other regions in the second quarter highlights the way in which different regions can wax and wane.
"It's hard to predict where the property market is headed. With a low cost of living, very competitive mortgage rates, renewed political certainty and a strong jobs market, there are many positives. However, should events in Greece spiral out of control, the UK property market will not be immune."
