Isn't part of the Avernum lore that they simply don't have the materials or expertise to craft magical items? That's why shops almost never sell magic items(special items, yes, but most don't have that sparkle that indicates magic).
Maybe adjust this a little, and just say they lack any magical capabilities above, say +3ish items? Or maybe a strict cost limit would be better. The Mage's Tower or Castle might be able to make magic items up to 10000-15000 gp in cost, for instance, but past that they lack the tools/materials/skills needed. Someone like Erika might be capable of more, but getting one of those high-end mages to stop and craft for you is probably going to be an expense all to itself.
Maybe instead of different stats for different materials, instead assign durability ratings which change in use, and lower stats as the durability is reduced? Only in drastic situations, though, so you're not making tic marks every round of combat. Something like stone might have a durability of around 5, while steel might have as high as 20.
For weapons, they might lose a point of durability every time the wielder rolls a "1", but armor might lose a point of durability any time the enemy makes a critical hit(or maybe even threatens a critical). Reduce stats every 20% or so(so stone loses stats every time something goes wrong, but steel requires a sequence of problems to start going down).
Damaged equipment should lose a lot of its value, and making repairs should require time in a proper forge or workshop. So players are either forced to sell damaged equipment on the cheap, or pay for workshop time so they can repair it themselves(probably not worth it except for exceptional items). And if players are also forced to repair their gear(maybe 10% of the purchase cost per 20% of damage? So a broken weapon can be repaired at half cost, but a dinged one is relatively cheap).
Of course, enemy gear should come pre-damaged(to save time, you might want to just set enemy gear to a certain pre-damaged level then ignore it in battle, so you don't have to track two-dozen pieces of gear for wear and tear mid-combat).
Consider changing some magical enchantments to simple physical improvements to the weapons. +1 damage? That's not magic, just good forge work! Keen? It's just really sharp! "Magic" weapons without magic. Of course, they should be expensive. A little moreso than they might be as enchantments, since they won't count as enchantments. But if you strictly limit what sort of enchanting players can do, you might consider making such weapons a bit cheaper instead, as a way to soften the blow of a low-magic environment.
You might consider banning certain high-magic classes. Wizards, sorcerers, clerics, favored souls, archivists and basically every variation on the psion class(if they were on the table in the first place) will pretty all single-handedly murder the impact of a low magic environment, with spells like Magic Vestment and other handy replacements for magical gear. I'm not saying "no magic", but consider using the more specialized casters(Dread Necromancer, Beguiler, Warmage, and Healer are all far more niche than most D&D casters, but cover various specializations you might expect of spell casters) instead, as their more narrow focus leaves less room for players to usurp your expectations of the setting.
At the very least, you might want to carefully comb spell lists for long-range teleportation magic and flight, since travel is one of the things that seems like it should never be trivialized in Avernum.