When the scheme launched, the best buy product paid 4%, but today the top-paying rate is just 2.27% from Barclays, according to data firm Moneyfacts.

While rates were never meant to be the main selling point of these variable savings products, the dramatic cuts will be bad news for wannabe homeowners scrambling to gather a deposit.

More than 868,000 savers have opened a Help to Buy ISA since launch, according to latest Treasury figures.

The scheme works like a normal cash ISA in that you open an account with a bank or building society and any interest you earn is tax free.

What makes it special is that you can deposit up to £1,200 in the first month and then £200 a month after that, and the government will add a free top up worth 25%.

Thanks to rate cuts, Moneyfacts calculates that someone who managed to put £1,200 in the top-paying Help to Buy ISA today would be £20.76 worse off than those who invested the same amount in the top-paying account back in December 2015.

Adding to first-time buyers’ woes, the Lifetime ISA (LISA) has failed to take off in the cash ISA market.

The LISA allows you to save up to £4,000 a year and gives you a 25% government bonus every tax year on what you put in. The money in a LISA can only be used for buying a first home or as retirement income after you reach 60.

At the moment, you can only open a LISA via a limited number of investment platforms, namely Hargreaves Lansdown, Nutmeg and The Share Centre, which means you have to invest in the stock market.

Skipton Building Society has confirmed it will launch a cash LISA next month.

Charlotte Nelson, finance expert at Moneyfacts, said: “A stocks and shares option may be a great choice for those looking to use the LISA as part of their pension, where they may be willing to take risks. Savers who are aiming to use the pot for a house deposit, however, are less likely to want to take those risks with their capital.

“With the average age of a first-time buyer increasing and the LISA’s maximum age of 39, many savers who are looking to buy their first property feel like they have been cast aside, left to contend with even lower rates in the standard savings market.”

Options for first-time buyers

So, what can first time buyers do to maximise their savings?

Moneyfacts suggests they “play the savings game”.

As well as considering the Help to Buy ISA and LISA to get the government bonus on offer, there are also mortgage saver products available from some local building societies.

These savings accounts come with loyalty incentives if you take out a mortgage with the same building society. For example, Family Building Society’s First Home Saver pays up to £500 towards the product fees on taking out a Family Building Society mortgage. (See table below for more examples).

There’s also the option of high interest current accounts or regular saver accounts, which pay some of the highest interest rates on the market.

Last week, we reported that 17 of these types of product currently pay an inflation-busting return.

Among them, Saffron Building Society and Kent Reliance’s regular savers pay 3.5% and 3% respectively.

TSB and Tesco Bank pay 3% on their current accounts, while Nationwide pays up to 5%.

These accounts all come with strict criteria.

For more information, see: Inflation hits 2.7%: the 17 savings accounts that can beat it

Mortgage saver accounts

Source: Moneyfacts