The new single housing association, which would still be called Peabody, would have a £6bn asset base to borrow against,  providing 55,000 homes to 111,000 residents across London and the South East.

The boards of Peabody and Family Mosaic both believe that a merger would enable the larger group to access  better resources and build more homes.

In a joint statement about the merger, Lord Kerslake, chair of Peabody, and Ian Peters, chair of Family Mosaic, said: “The new group would build on the track record, capabilities and shared values of Peabody and Family Mosaic to create a truly distinctive organisation.

“Our combined scale and London focus would enable us to do more together than we could achieve alone.”

The formal merger is expected to complete around July 2017.

Upon closing of the merger, Brendan Sarsfield, chief executive of Family Mosaic, will become Peabody chief executive as Stephen Howlett, existing Peabody chief, retires.

Lord Kerslake, Chair of Peabody, will become Chair and Ian Peters, Chair of Family Mosaic, will be vice chair.

This morning rival south east housing associations L&Q and East Thames revealed they had completed their merger and sealed a £2.6bn financing package to fund an ambitious house building plan.

The deal sees the new body, which will retain the L&Q name, double its housing pipeline to 100,000 homes. Longer term the newly-merged housing association plans to invest £15bn over the next 10 years on a massive building programme in the south east.

The big deals hold out the prospect of a fresh round of major framework contests for contractors seeking to get on the housing association’s preferred lists.