They grant it for six months at a time. You have to reapply at the end of that period, and the rules have become increasingly stringent. You can be sure they will not allow you to keep renewing it indefinitely, but a few years is not unheard of.
When you resume paying the principal it will be higher than it was when you went on interest-only. I don't think this is a penalty per se though, it's just compensating for the capital you didn't pay previously. It shouldn't be a huge increase over what it would have been otherwise.
Above applies to DCC, not sure if it works differently with other local authorities.