The robust recovery in house prices is drawing to an end, according to the latest Nationwide report, which forecasts property inflation to drift lower for the rest of the year.

House prices inched ahead by 0.1% in June, said Nationwide, while annual inflation fell back to 8.7% from 9.8% in May. House prices have risen by 3% since the start of the year and the average home is now worth £170,111, the report said.

A slowdown would mark the end of a remarkable recovery that has seen property prices rise by 15% from their recent low in February 2009, to just 8.5% off their 2007 peak level of £186,044, according to Nationwide.

It added that an increased supply of new properties for sale, as speculative sellers take advantage of no longer needing to pay for a home information pack before marketing their home, should bring a further slowdown.

The Nationwide report follows a Hometrack survey earlier this week that revealed prices rose by 0.1% in June, but were only going up in 11% of postcodes.

Prices to stabilise

Martin Gahbauer, Nationwide's chief economist, said: 'Barring a significant pick-up in house prices over the next few months, the annual rate of inflation should continue to drift lower, in light of the very strong price increases recorded during the summer of 2009.

'Recent indicators point to an increase in the supply of property coming to the market for sale, perhaps in response to the abolition of Hips in the opening days of the new coalition government.

Nationwide's figures for the three months to June revealed that the South West saw the strongest house price inflation, with prices rising by 3%, followed by the North West at 2.6% and London at 2.5%.

Property values continued to fall in Northern Ireland, with prices dropping by 5.7% during the three months.

More property on the market

David Smith, senior partner at property consultants Carter Jonas said: 'There has certainly been more properties coming onto the market in recent weeks, and although on the one hand this is positive news for a market that has been bereft of stock, at the same time there hasn't been any noticeable uplift in buyer demand, which will inevitably see a suppression in house prices as a result.

'Where house prices go from here is difficult to predict because there are so many factors at work at the moment.

The fallout from the Budget will certainly have a major role to play in the coming months, with uncertainty surrounding impending public sector cuts and higher taxes, and of course we still have the ever-present threat of interest rate rises in the mix.'