Help to Buy mortgage guarantee unveiled by George Osborne George Osborne is hosting a breakfast meeting with lenders and builders to discuss the scheme's 'mortgage guarantee' element. Photograph: Korotayev Artyom/Itar-Tass Photo/Corbis George Osborne has launched the second phase of the Help to Buy scheme in a meeting with mortgage lenders and housebuilders that laid out the terms of a programme that will underwrite home purchases worth up to £600,000. The Homeowners Alliance, a campaign group for aspiring property buyers, warned that if the scheme is allowed to drive up house prices it could "cause a bubble and encourage people to take on huge mortgages." However, Osborne is hoping that the terms of the scheme will prevent a bubble, including strict income checks and a prohibition on using the loan guarantee to acquire second homes. Many people with blemishes on their credit files will be barred from the £12bn government scheme to boost lending to homebuyers with small deposits. Those keen to benefit from the second part of the scheme, due to come into effect in January 2014, will also be subjected to income checks and "stress testing" to ensure they can afford the new "guaranteed" mortgages, ministers say. They will also have to sign a declaration that the purchase is not a second home. The chancellor hosted the breakfast meeting with lenders and builders to discuss the scheme's "mortgage guarantee" element, which is aimed at enabling many more people to obtain a home loan without the need for a prohibitively large deposit. The first part of the scheme, launched in April, involves giving loans to homebuyers that can be used for a deposit on a new-build property. Until now there has only been limited information available about the second, larger, part of the initiative, which will see the government make available £12bn of guarantees to lenders - enough, it believes, to support £130bn of mortgages with the buyer paying a deposit as low as 5%. Ministers have claimed the scheme could guarantee up to 190,000 mortgages a year over three years. In recent years most of the lowest interest rates available have been on mortgages of up to 60% of the property's value, effectively shutting out first-time buyers without substantial cash backing. The new scheme, to run for three years, will see the government give lenders who offer low-deposit mortgages the chance to buy a guarantee on the portion of the mortgage between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses. For example, a family buying a £300,000 house would still have to put down a deposit of (at least) 5%. They would take out a 95% mortgage from a bank or building society, which means they would borrow £285,000, of which the first £45,000 would be covered by the government guarantee. Lenders will have to pay a fee for each mortgage guaranteed, and this has yet to be finalised. The Treasury said banks and building societies were being given more detailed information about the mortgage guarantee part of the scheme so they could prepare for next January. A spokesman said that under these rules, would-be borrowers would not be able to access the guaranteed mortgages if their credit history did not meet the Financial Conduct Authority's "impaired credit" standards. Someone who had a county court judgment against them for more than £500 and related to the previous three years would be barred. He added: "Borrowers must be able to afford the mortgages, with income verification and stress testing as set out in the FCA's mortgage market review." The Treasury said that the fee charged to lenders would be based on LTV bands and finalised following discussions with lenders. "It will be set to encourage as many lenders as possible to participate in the scheme, while protecting the taxpayer," it added. It was also confirmed that people will not be able to use the scheme to buy second homes, with lenders required to collect a declaration stating that the borrower has no interest in a property anywhere else in the world. It will not be possible to use Help to Buy in conjunction with any other government home-buying scheme.