It sounds like there is a small hole in the diverter valve diaphragm. The change in water flow when you adjusted the Thermostatic valve moved the diaphragm but then the extra pressure went through the hole and equalised the pressures. Buy a diaphragm and if you find that there is no hole in the old one when you take it out, you can always go back and buy a Heat Plate, heat exchanger while the water is off /part drained down.
GRANT MPCBS33 DIAPHRAGM KIT
GRANT MPCBS33 DIAPHRAGM KIT
