Think of Diablo 2 Unique Ethereal items instead though, because that was what it felt like to some extent. 
Now that there are forged items, it’d feel like that for sure without a different balance to it – I wouldn’t want to lose 25% durability on my 8 forged bombs, 15 forged hammers and 7 forged chisels, and whatever else I’m carrying, just because I slipped and died while building, that could be dozens of thousands of coin worth of damage right there… Slip and die four times and I’ve lost some high-end gear for no good reason. That’s the kind of stuff in games I find really frustrating.
Durability penalties are fine if there are ways to offset them somehow and if they are fair but like you say there are no NPCs and no way to repair items, so a XP penalty which can very easily be offset by a consumable food item, really doesn’t seem like it’s that severe, in comparison. An experience food item is worth only a few hundrend coins, for comparison, and really helps a lot with offsetting the XP penalty.
Though I would say the XP penalty does contribute to make the game feel sluggish to progress through at low and mid level.
Just in case you’d like to read past discussions on the topic of the death penalty, and you haven’t seen these yet: 