his mum died of cancer when he was a young teenager and his family life has been really sad so he feels isolated and rejected by his dad's current family
That's really sad, but you can't fix all the problems in the world. He has a home to live in and he will be working soon, he can move out and flat with mates of DD if he wants to. He must be around 20, so not a young teenager. Even if he was, in the nicest possible way, he's not your responsibility.
I wonder if part of the reason for having this baby was to create a family of their own?
his lack of communication with me is in part due to his extreme shyness and inability to relate easily to people
Again - that's a shame, but it's not your responsibility. He's going to make YOU feel uncomfortable in YOUR home? He has other options.
him not being around will mean that my daughter will have lots more to do and will be much more reliant on me
Nope. She chose to get pregnant, if she chooses to keep this baby she can look after it like any single parent. YOU were not part of the decision making process when she decided to have a baby, you don't have to step in and do all the hard work for her. She has to make the choice - she terminates this pregnancy or she takes the responsibility for it.
will it split them up
If not living together will split them up then they aren't that solid are they? IF DD isn't happy with him once the baby comes it is going to be much harder for her to split from him if he is living there, but do you want that added pressure on her??
I'm not sure that they would even have this baby if they didn't have my safety net, as they seem to be pushing me for a quick answer, but I don't want to be responsible for making them terminate, even though I think it is the more responsible thing to do. I feel as though I have been put into an impossible situation
Look, THEY are choosing this situation. She didn't take her pill, he didn't use a condom, they didn't go and get the MAP. Were you consulted in any of that process?? NO.
You have not thrown DD out.
You have told her that her & the baby can live with you.
If they want to play happy families they need to move out.
It's not as if you are saying 'Have a termination or I am washing my hands of you' is it?? NO.
If they choose to have a termination simply because you wont let him live there, then frankly a termination is the best solution until they both grow up.