That is the weakest annual pace since June 2013, and marks a slight slowdown from July.
Month on month, prices rose by 0.3% in August, compared with 0.4% the month before.
The average house value in August was Â£195,279, according to the Nationwide house price index.
One reason why house price inflation has apparently weakened is a rapid growth in prices at this time last year, the Nationwide said.
"This month's data provides further evidence that annual house price growth may be stabilising close to the pace of earnings growth, which has historically been around 4%," said Robert Gardner, Nationwide's chief economist.
"Clearly house price trends are determined by a wide range of factors, but labour market developments are amongst the most important," he added.
With demand for homes rising, new home construction needs to increase to keep houses affordable, he said.
The figures from the Nationwide are in marked contrast to those from its rival, Halifax.
Earlier this month the Halifax reported that house prices across the UK were rising at 7.9% a year, and it expected strong growth to continue.
Halifax and Nationwide use different "mix adjustments" in their methodology.
This involves a different emphasis on property sizes, to account for the fact that more small or large properties may be sold in any one month.
UK house prices rose by 3.2% year-on-year in August, according to the latest survey from mortgage provider Nationwide.