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There is a £500m market for loans to social housing tenants in London that could be met by housing associations, a study for London & Quadrant Housing Trust has found.

The study also found that four-fifths of the capital's 875,000 social housing tenants are classed as financially excluded. This included those who had low incomes and poor credit ratings that often prevented them opening current accounts or borrowing from high-street banks.

Community Loan Finance in London, by Professor Bob Paterson of Salford University, found that London credit unions – effectively community banks – presently have loan books of £6.5m and do not have the additional capacity to meet demands from London's social housing tenants.

These tenants have more than £500m of personal loans with non-mainstream lenders, including doorstep lenders, catalogues and store cards – many at high rates of interest.

Credit unions are a means of access to loans for financially excluded people, as borrowers are able to take out a loan equivalent to two or three times their savings.

On Wednesday, London & Quadrant presented its findings to its partners in the scheme, Ealing Family Housing Association, Metropolitan Housing Trust, Barclays Bank, Lloyds TSB and the Housing Corporation.

David Montague, group finance director for London & Quadrant, said: "We know there is very high demand for community finance in London. The supply side is weak and there is a compelling case for innovation by housing associations.

"Eighty per cent of social housing residents are financially excluded people and with Housing's Better Future, it's about associations providing more than bricks and mortar. If we don't intervene, who will?"

Montague said he was talking to other associations, which he did not want to name, that were interested in replicating the scheme.

Paterson questioned more than 500 London & Quadrant and Metropolitan Housing Trust tenants in London over 2002/03 about their savings needs and interviewed all London community finance providers.

Fifty-four per cent of them are borrowing and 93% of those are borrowing from non-mainstream sources.

Paterson also found high unserviced demand for business loans from community finance providers such as credit unions. However, London credit unions have only £10m of loans with community businesses such as self-employed window cleaners.

The study will inform London & Quadrant's community finance initiative, Change, which is being piloted in four London boroughs – Enfield, Southwark, Waltham Forest and Newham (HT 16 January, page 15).

Prospect Community Housing in Scotland started a community finance service in April and its backer Bank of Scotland is talking to other associations about rolling out the model.

n The Office of Fair Trading is investigating debt consolidation firms that offer a new loan to repay old debts. The OFT is concerned that the firms levy hidden charges and borrowers are unaware that the deal could leave them in greater debt over the long term than their previous repayment arrangements.