Hi,
You'll be surprised at what £500 can get you nowadays! most will perhaps be in pretty bad shape/condition, but not always so. If you are prepared to look around and travel further to view cars, you can get excellent cars. A recent advert for a BMW E36 Compact had the car up at around £395, MOT'd for 10+ months left, and some choice changes to make it drive nicer, the car was sold within 2 days or so (I'm on other motoring forums and check the classifieds fairly regularly)
It's nothing to do with the fact the UK is an island nor is right hand drive. The reason cars 'generally' depreciate rapidly here is down to a number of factors, usually all related to finance and how the UK's economy is geared up. It's also very easy to have a UK driving license and not have a car that you own. You'll need to pass the Theory test and the practical exam in order to get it.
As to which cars are better or to be avoided, then every single car out there has it's own set of known issues or problems. If you are handy with the spanners etc, then you'll save a lot on labour costs/mechanic costs if you can DIY. I personally tend to look at and go for more quality cars rather than the more budget or lower end cars which usually are more complex but have plenty of information online about them or, local specialists in case you do need them.
As per above, look on autotrader, ebay, pistonheads for cars where you can put in search limits and criteria and go from there!
Cheers, DtM! West London & Slough UK!