The building society’s data showed prices rose 0.3 per cent in May, but dropped 0.7 per cent on the year, with the average house now costing £166,022.
London remains the least affordable region with rents taking up 40 per cent of earnings and average house prices more than six times earnings.
“This provides further evidence that housing more generally is in short supply, reinforcing the view that any efforts to reinvigorate the housing market should focus on the demand and the supply side of the market,” said Nationwide chief economist Robert Gardner.
However, although prices remain high, low interest rates are increasing home affordability – repayments on a typical mortgage are now equal to around 31 per cent of take-home pay, the lowest level for a decade.
But despite low interest rates, economists believe the overall weak economic outlook will weigh on prices.
“Housing market activity remain very low compared to long-term norms, and the fundamentals are currently problematic overall for the market with unemployment high, earnings growth muted, and the economic outlook both difficult and uncertain,” said Howard Archer from IHS Global Insight.
“On top of this, some mortgage rates have risen recently due to lenders’ higher borrowing costs in wholesale markets.”