I honestly don't think item degradation is a mechanic that adds a lot to the gameplay, anyway I'm not totally against it, but only with use, not overtime
the degradation should never go to the point or rendering inusable the object, should only reduce the stats
for semplicity of implementation and use the repair should be done in the town forge, in another tab added to the 3 already present, it should be instantaneus and use an amount of stamina and resources coherent with that of forging a new item (I also would appreciate adding a forge to castles, maybe as an upgrade to build)
I think that the item degradation could work with the actual modifiers system, having a negative modifier already impact some stats (at least for some kind of items, like shields and armors, I suppose the other categories will be fixed sooner or later)
you start with a normal item, after a reasonable amount of use it get the first negative modifier, if you keep using it it will degrade to the second negative modifier, etc.
whathever modifier the items has, repairing it should always take it to the no modifier state, the lower the starting modifier the higher the cost for reparing it (stamina cost should remaing the same or change in very small amounts, to avoid situations in witch to repair an item the stamina required is more than the max stamina)
a smith perk could let you repair over the no modifier to the first positive one or better, for a higher cost, another one could reduce the cost of repairs, another the degradation speed