The typical home installation is to connect the customer WiFi router to the ISP modem and then connect EVERYTHING ELSE in the house to the customer WiFi router. This creates one "Layer 2" network.  When the central patch panel is in a bad location for WiFi, such as the basement, it would make a "better network" if the router were located upstairs.  But, with only a single Ethernet cable from the patch panel to different rooms there is no way to carry the WAN traffic to/from the ISP and the internal LAN traffic over a single cable.

A pair of managed switches should solve this problem:

Is this the correct 802.1Q VLAN design? i.e. VLAN 1 carries the WAN traffic to/from the ISP and VLAN 2 carries "everything else"?

The PVID for Port 1 on each switch should be set to 1.  What should the PVID be set to on Port 5 and 8?