Hey there, I was just looking up this issue as well because I have just tried using my dongle and headphones and it wasn’t working either, just playing out the I phone speakers.
I didn’t want to restore the phone so I just unplugged the dongle and flipped it around and re plugged it in and then it worked, I don’t know if that helps at all or if that will be the case with the new I phone 7 headphones but good luck!