Figures from the Bank of England showed net borrowing of consumer credit by individuals fell to £1.2 billion in July, down from £1.6 billion in the previous month.
The data came alongside figures which showed a bigger-than-expected drop in mortgage approvals in July.
The BoE said during July, households deposited an additional £0.4 billion with banks and building societies, well below the £3.8 billion of deposits in June.
This was mainly driven by net flows of £10.1 billion into interest-bearing time deposit accounts.
Net flows into ISAs saw an increase to £4.3 billion in July, from £2.9 billion in June but these inflows were mostly offset by net outflows from interest bearing and non-interest bearing sight accounts of £10.2 billion and £0.8 billion respectively.
Ashley Webb, a UK economist at Capital Economics, said: “The drag from higher interest rates on bank lending grew further in July, particularly in the housing market.”
“We think this effect will intensify as the Bank of England presses ahead with another 25 basis points interest rate hike, from 5.25% to 5.50%, in September and keeps rates there until the second half of 2024.”
“And the subdued £0.4bn increase in households’ bank deposits is much smaller than the pre-pandemic average and may suggest that households finances are becoming more stretched.”