I dont know about this particular product but it sounds very similar to a number of others.

Equity - yes if the property has no mortgage it still has equity - the equity is as youy suggested:
Or is the equity the whole value of the property.
Risk to guarantor - if you are unable to make your repayments, for any reason, the guarantor is required to make repayments on your behalf. If repayments are still not met and the bank has to foreclose on the mortgage and sell your house, the guarantors are responsible for paying the bank any money that the bank has lost on the sale of your house - if that means that the guarantors have to sell their house as they do not have the cash then that is what has to happen. The bank is using the guarantors house as "insurance" for your high risk loan - that way they still get their money no matter what.