By Christina Fincher and Leika Kihara

LONDON (Reuters) - House prices fell a record 2.5 percent in May, the Nationwide Building Society says, raising fears the property market downturn could soon turn into a crash that hits the whole economy.

The monthly decline, the largest since the lender started compiling records in 1991, wiped 5,000 pounds off the value of the average home and took prices 4.4 percent lower than a year ago -- the sharpest rate since the 1992 economic slump.

"The sheer size of the drop in house prices, without the economy having yet slowed significantly, suggests that this housing market correction will be deep and prolonged," said Seema Shah of Capital Economics.

"All this is with the support of a still relatively healthy labour market. Imagine then, what will happen to house prices once the economic downturn gathers pace and unemployment rises."

Prices have now fallen for seven months running -- the longest stretch of falls in 26 years when the last housing market crash plunged millions of Britons into negative equity, or owing more on their mortgage than the value of their home.

For now, Nationwide is predicting that prices will fall by less than 10 percent this year, which would still keep the vast bulk of Britons recording paper profits on their homes which have trebled in value over the last 10 years.

The Bank of England has not signalled too much concern over the house price falls as it has always contended some slowdown was needed after years of double-digit inflation.

Governor Mervyn King has also said the economy is actually doing quite well, outside the property and financial sectors.