The decline, the largest for more than three years, also marks the first time since late 1991 that the number of affected households has dropped below the million mark.
A further 1.9 million homeowners have insufficient equity - less than pounds 5,000 of net equity in their property - to finance a move without also relying on separate savings.
The average shortfall in negative equity levels, where a mortgage is greater than the value of the property, also dropped by pounds 200 to pounds 4,200 compared with the first quarter of 1996.
The report was compiled by Rob Thomas, an economist at UBS, the Swiss banking group. It follows a similar survey last month by Woolwich Building Society, also showing that numbers of borrowers suffering from negative equity have declined significantly.
Both reports are based on calculating how many people are lifted out of negative equity given continuing house price increases. Last week, both Halifax and Nationwide building societies reported a monthly increase for July of 0.5 per cent or more.
Mr Thomas said: "The dramatic reduction is testament to the most buoyant housing market since the late 1980s. Although we don't expect the recovery to continue at this pace in the second half, house prices will keep rising."Reuse content