George Osborne's latest attempt to kickstart the economy by underwriting a house-buying revival has been criticised by economists and campaigners, who warned that the scheme to partially guarantee £130bn of low-deposit mortgages risks creating a new housing bubble.

The chancellor launched the second phase of the Help to Buy scheme in a meeting with mortgage lenders and housebuilders on Tuesday, laying out the terms of a programme that will underwrite home purchases worth up to £600,000.

The "mortgage guarantee" element of Help to Buy, due to come into effect in January 2014, is aimed at enabling many more people to obtain a home loan without the need for a prohibitively large deposit. The government has set out some of the rules for the scheme, which it said were designed to ensure responsible lending and borrowing. For example, someone who had a county court judgment against them for more than £500, and which related to the previous three years, would be barred.

But some commentators claimed the government should not be underwriting mortgages in this way, and that the scheme risked driving up prices.

Graeme Leach, chief economist at business organisation the Institute of Directors, said: "The housing market needs help to supply, not help to buy, and the extension of this scheme is very dangerous … the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages."

He added that ministers should focus on relaxing planning laws to make it easier to build more homes.

Michael Pearce, assistant economist at Capital Economics, said the risk for the chancellor was that Help to Buy "re-inflates the house price bubble that the UK saw in the runup to the 2008 recession (which still has not fully deflated), that could pop before the election".

But he added: "While the policy has been criticised for its ropey economics, it may be more successful politically. Indeed, the risk that it pushes up house prices may be positive for the Conservatives' election chances in 2015."

The Homeowners Alliance, a campaign group for property owners and would-be buyers, warned that if the scheme was allowed to drive up house prices "it could cause a bubble and encourage people to take on huge mortgages that could be devastating in the long run".

The need for a clear "exit strategy" was raised by several commentators. The scheme is due to run for three years, and the Council of Mortgage Lenders, representing banks and building societies, said it did not believe there was a need for it to become permanent. However, it added that market disruption can occur when there are "bulges of activity" in the runup to an end date, and this would need to be addressed.

Lenders will have to pay a fee for each mortgage guaranteed, though a final decision on this has yet to be made. The Treasury said the level of the fee would be finalised following discussions with those taking part.

Ministers will make available £12bn of guarantees to lenders – enough, they believe, to support £130bn of mortgages, with the buyer paying a deposit as low as 5%. The government gives 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.

Homebuyers keen to benefit from the initiative will be subjected to income checks and "stress testing" to ensure they can afford the guaranteed mortgages, ministers say. They will also have to sign a declaration that the purchase is not a second home.